Financial Planning

Understanding Taxes on Real Estate Gains
Understanding Taxes on Real Estate Gains 850 500 smolinlupinco

If you own real estate held for over a year and sell it for a profit, you typically face capital gains tax. This applies even to indirect ownership passed through entities like LLCs, partnerships, or S corporations. You can expect to pay the standard 15% or 20% federal income tax rate for long-term capital gains.

Some real estate gains can be taxed at even higher rates due to depreciation deductions. Here are some potential federal income tax implications of these gains.

Vacant land

Specifically for high earners, the current maximum federal long-term capital gain tax on vacant land is 20%. For 2024, the 20% rate kicks in for 

  • Single filers with taxable income exceeding $518,900
  • Married joint-filing couples with taxable income exceeding $583,750
  • Head of household with taxable income exceeding $551,350. 

If your income is below these thresholds, you’ll only owe 15% federal tax on vacant land gains. Remember that you may also owe the 3.8% net investment income tax (NIIT) on some or all of the gain.

Gains from depreciation

Depreciation-related gains from real estate, also known as unrecaptured Section 1250 gains, are generally taxed at a flat 25% federal rate. However, if the gain would be taxed at a lower rate without this special treatment, this 25% rate does not apply. However, you could owe the 3.8% NIIT on some or all of the unrecaptured Section 1250 gain.

Gains from qualified improvement property

Qualified improvement property or QIP, refers to improvements to the interior of nonresidential buildings after being placed in service. QIP excludes enlargements such as elevators, escalators, and structural changes.

You can claim tax deductions for QIP through Section 179 deductions or bonus depreciation. When you sell QIP for which you’ve claimed Section 179 deductions, part of the gain may be taxed as ordinary income at your regular tax rate rather than the lower long-term capital gains rate. This is known as Section 1245 recapture. You may also owe the 3.8% NIIT on this portion of the gain.

If you sell QIP for which first-year bonus depreciation has been claimed, part of the gain might be taxed as ordinary income at your regular tax rate via Section 1250 recapture, rather than lower long-term gain rates. This applies to the portion of the gain that exceeds the depreciation calculated using the applicable straight-line method. Again, you may still owe the 3.8% NIIT on some or all of the recapture gain.

Tax planning point: Choosing straight-line depreciation for real property, including QIP, there won’t be any Section 1245 or Section 1250 recapture. You will only have unrecaptured Section 1250 gain from the depreciation taxed at a federal rate below 25%. The 3.8% NIIT on all or part of the gain may still apply.

Handling the complexities

The federal income tax rules for real estate gains are obviously very complex. There’s a lot to consider: different tax rates applied to different categories of gain, the possibility of owing the 3.8% NIIT, and potential state income tax. 

Our team of skilled tax advisors can help you understand the intricacies and minimize the tax liability of capital gains. Contact a Smolin advisor to discuss your specific situation.

Six Tax Issues to Consider During a Divorce
Six Tax Issues to Consider During a Divorce 850 500 smolinlupinco

Divorce is a complex legal process, both financially and emotionally. Taxes are likely the farthest thing from your mind. But, you need to keep in mind the tax implications and consider seeking professional assistance to minimize your tax bill and navigate the separation process more smoothly. 

Here are six issues to keep top of mind as you move through the divorce process.

1. Planning to sell the marital home 

When a divorcing couple chooses to sell their home, they can possibly avoid paying tax on up to $500,000 of gain if they owned the home and lived there for two of the previous five years. If the living situation is such that one spouse continues living in the home while the other moves out, as long as they both remain owners, they might be able to avoid gains on future sale of the home for up to $250,000 each. In this instance, there may need to be special wording in the divorce decree or separation agreement to protect this exclusion for the spouse who moves out.

If the couple doesn’t meet strict two-year ownership and use requirements to qualify for the full $250,000 or $500,000 home sale exclusion, they might still be eligible for a reduced exclusion due to unforeseen circumstances.

2. Dividing retirement assets

Pension benefits often represent a significant portion of a couple’s marital assets. To ensure fair division of property, a “qualified domestic relations order” or QDRO is typically necessary. A QDRO is a legal document that outlines how pension benefits will be split between divorcing parties and whether one former spouse has the right to share in the benefits.

Without a QDRO, the spouse who earned the benefits remains solely responsible for associated taxes, even though they’re paid to the other spouse. A QDRO essentially transfers a portion of the pension benefits to the non-earning spouse along with the tax liability for their share. 

3. Determining your filing status

If you’re still legally married as of December 31st, you still need to file taxes as married jointly or married separately, even if you are in the process of getting divorced. However, if you’ve finalized your divorce by year-end, you could potentially qualify for “head of household” status if you meet certain requirements, such as having dependent children reside with you for more than half the year. 

4. Understanding alimony and spousal support 

The Tax Cuts and Jobs Act of 2017 made significant changes to the way alimony and spousal support are treated regarding taxes. For divorce or separation agreements executed after December 31, 2018, alimony and support payments are no longer deductible by the payer and are not taxable income for the recipient. This means alimony and spousal support are now treated similarly to child support payments for tax purposes. 

It’s important to note that divorce or separation agreements executed before 2019 generally still follow the old tax rules, where alimony is deductible for the payer and taxable for the recipient.

5. Claiming dependents

Unlike alimony, regardless of when the divorce or separation agreement was executed, child support payments are neither tax-deductible for the payer nor taxable income for the recipient. 

Determining which parent claims the child as a dependent or tax purposes often depends on standing custody agreements. Generally the custodial parent —the one the child lives with the majority of the year—can claim the child as a dependent; however, there are a few exceptions.

For instance, if the non-custodial parent provides more than half of the child’s support, they may be able to claim the child. It’s essential to coordinate with your ex-spouse to determine who will claim the child and thus access any related tax breaks.

6. Dividing business assets 

Divorcing couples who own a business together face unique tax challenges. The transfer of business interests in connection with divorce, can trigger significant tax implications.  For instance, if one spouse owns shares of an S corporation, transferring the shares could result in loss of valuable tax deductions such as forfeiting suspended losses ie. when losses are carried over into future tax years rather than being deducted for the year they’re incurred. 

Similarly, transferring a partnership interest can lead to even more complex tax issues  involving partnership debt, capital accounts, and valuation of the business. 

Seeking professional guidance

These are just some of the tax-related issues you may face when getting a divorce. You may need to adjust your tax withholding to reflect your new filing status. Be sure to also notify the IRS of any address or name changes. You likely also need to re-evaluate your estate plans to align with your new circumstances.

Proper planning is essential to ensure a fair division of assets while minimizing your tax liability. Our skilled team of Smolin advisors can help you navigate the complex financial issues involved with your divorce.

Does a FAST Fit into Your Estate Plan?
Does a FAST Fit into Your Estate Plan? 850 500 smolinlupinco

Traditional estate planning often focuses on minimizing gift and estate taxes while protecting your assets from creditors or lawsuits. While these are important considerations, many people also hope to create a lasting legacy for their family.

Dovetailing with the “technical” goals of your estate plan, such “aspirational” goals might include preparing your children or grandchildren to manage wealth responsibly, promoting shared family values and encouraging charitable giving. A Family Advancement Sustainability Trust (FAST) is one way to ensure your estate plan meets your objectives while informing your advisors and family of your intentions. 

FAST funding options

A well-structured estate plan can protect your assets while aligning with your family values and goals. Establishing a FAST can bridge the gap between those objectives.

A FAST typically requires minimal up-front funding, instead being primarily funded with life insurance or a properly structured irrevocable life insurance trust (ILIT) upon the grantor’s death. This lets you maximize the impact of your trust without depleting your current assets. 

4 decision-making entities

FASTs are typically created in states that 1) allow perpetual, or “dynasty,” trusts to benefit future generations, and 2) have directed trust statutes, making it possible to appoint an advisor or committee, making it possible for family members and trusted advisors to participate in the governance and management of the trust.

To ensure effective management and decision-making, a FAST often includes four key roles:

  1. An administrative trustee oversees day-to-day operations and administrative tasks but doesn’t handle investment or distribution decisions.
  2. An investment committee typically consists of family members and an independent, professional investment advisor who collaboratively manage the trust’s investment portfolio.
  3. A distribution committee which determines how trust funds are used to support the family and helps ensure that funds are spent in a way that achieves the trust’s goals.
  4. A trust protector committee essentially takes over the role of the grantor after death and makes decisions on matters such as the appointment or removal of trustees or committee members and amendments to the trust document for tax planning or other purposes.

Bridging the leadership gap

In many families, the death of the older generation creates a leadership vacuum and leads to succession challenges. A FAST can be particularly beneficial for families looking to help avoid a gap in leadership and establish a leadership structure that can provide resources and support for younger generations.

Consult with a Smolin advisor to discuss if including a FAST in your estate plan is the right choice for your family.

Self-Directed IRAs: A Double-Edged Sword
Self-Directed IRAs: A Double-Edged Sword 850 500 smolinlupinco

Traditional and Roth IRAs are already powerful tools for estate planning, but a “self-directed” IRA can take their benefits to the next level. They can allow you to invest in alternative assets that might offer higher returns but they also come with their own set of risks that could lead to unfavorable tax consequences. 

It’s important to handle these investments with caution.

Exploring alternative investments

Unlike traditional IRAs, which usually offer a narrow selection of stocks, bonds, and mutual funds, self-directed IRAs allow for a variety of alternative investments. These can include real estate, closely held business interests, commodities, and precious metals. However, they can’t hold certain assets like S corporation stock, insurance contracts, and collectibles (like art or coins).

From an estate planning perspective, self-directed IRAs are particularly appealing. Imagine transferring real estate or stock into a traditional or Roth IRA and allowing it to grow on a tax-deferred or tax-free basis for your heirs.

Risks and tax traps

Before diving in, it’s crucial to have an understanding of the significant risks and tax traps of self-directed IRAs:

  • Prohibited Transaction Rules. These rules restrict interactions between an IRA and disqualified persons, including yourself, close family members, businesses you control, and your advisors. This makes it challenging for you or your family members to manage or interact with business or real estate interests within the IRA without risking the IRA’s tax benefits and incurring penalties.
  • Unrelated Business Income Taxes. IRAs that invest in operating companies may face unrelated business income taxes, payable from the IRA’s funds.
  • Unrelated Debt-Financed Income. Investing in debt-financed property through an IRA could create unrelated debt-financed income, leading to current tax liabilities.

Proceed with caution

Remember, if you’re considering a self-directed IRA, it might offer increased flexibility, but it also demands a higher level of due diligence and oversight. 

Assess the types of assets you’re interested in carefully and weigh the potential benefits against the risks. Reach out to your Smolin advisor to determine if a self-directed IRA is right for you.

Maximize Your Estate Planning with the Roth 401(k) Contributions
Maximize Your Estate Planning with the Roth 401(k) Contributions 850 500 smolinlupinco

When deciding on contributions to your 401(k) plan, you might wonder whether it’s better to choose pre-tax (traditional) contributions or after-tax (Roth) contributions.  The best choice depends on your current and anticipated future tax circumstances, as well as estate planning goals.

Traditional vs. Roth 401(k)s

The main difference between a traditional and a Roth 401(k) plan is how they are taxed. With a traditional 401(k), contributions are made with pre-tax dollars, which means you get a tax deduction when you contribute. Your money grows tax-deferred, but you’ll pay taxes on both your contributions and earnings when you withdraw them. 

In contrast, Roth 401(k) contributions are made with after-tax dollars, so you don’t get a tax break upfront but qualified withdrawals, including contributions and earnings, are tax-free. Plus you can contribute to a Roth 401(k) plan no matter how hight your income is.

For 2024, the salary deferral limits for both traditional and Roth 401(k) plans are the same: $23,000,  plus an additional $7,500 if you’re 50 or older by the end of the year. Combined employee and employer contributions can go up to $69,000, or $76,500 if you’re 50 or older.

The rules for taking distributions from traditional and Roth 401(k)s are similar. You may take penalty-free withdrawals when you reach age 59½, or if you die or become disabled (with some exceptions). For Roth 401(k)s, the account must be open for at least five years to take withdrawals.

One key difference is that traditional 401(k) accounts require a minimum distribution (RMD) at age 73 (or age 75 starting in 2032). Roth 401(k) accounts do not have RMDs starting in 2024.

From a tax perspective, with a Roth 401(k) means you pay taxes now, while a traditional 401(k) defers taxes until you withdraw the funds. Mathematically speaking, that means the best choice depends on whether you expect to be in a higher or lower tax bracket in retirement.

If you’re a high earner and expect a lower bracket when you retire, a traditional 401(k) might be more beneficial. On the other hand, if you expect to be in a higher tax bracket later (perhaps due to higher income or potential tax increases), a Roth 401(k) might be a better choice. 

Estate planning factors

Tax implications during your lifetime aren’t the only thing to think about. Estate planning factors are important too. Roth 401(k)s, with their elimination of RMDs, can be a powerful estate planning tool. If you don’t need the funds for living expenses, you can let the grow tax-free for as long as you want. And if the account is at least five years old, your heirs can withdraw the money tax-free.

On the other hand, a traditional 401(k) requires you to withdraw funds according to RMD rules, which might reduce the amount left for you heirs. Plus, their withdrawals will be taxable.

If you need help deciding which 401(k) account is best for your situation, reach out to a Smolin advisor to discuss your options. 

Could Borrowing From Your Corporation Equal Lower Rates, Bigger Risks?
Could Borrowing From Your Corporation Equal Lower Rates, Bigger Risks? 850 500 smolinlupinco

Did you know that you can borrow funds from your own closely held corporation at rates much lower than those charged by a bank? This strategy can be advantageous in some aspects but careful planning is crucial to avoid certain risks.  

The Basics

Interest rates have risen sharply over the last couple of years, making this strategy more attractive. Rather than pay a higher interest rate on a bank loan, shareholders can opt to take loans from their corporations. 

This option—with its lower interest rates—is available thanks to the IRS’s Applicable Federal Rates (AFRs) which are typically more budget-friendly than rates offered by banks. If the charged interest falls short of the AFRs, adverse tax results can be triggered.

This borrowed money can be used for a variety of personal expenses, from helping your child with college tuition to tackling home improvement projects or paying off high-interest credit card debt. 

Two Traps to Avoid

 

1. Not creating a genuine loan 

The IRS needs to see a clear-cut borrower-lender relationship. If your loan structure is sloppy, the IRS could reclassify the proceeds as additional compensation, which would result in an income tax bill for you and payroll tax for you and your corporation. However, the business would still be able to deduct the amount treated as compensation as well as the corporation’s share of related payroll taxes.

On the other hand, the IRS can claim that you received a taxable dividend if your company is a C corporation, triggering taxable income for you with no offsetting deduction for your business.

It’s best to create a formal written loan agreement to establish your promise of repayment to the corporation either as a fixed amount under an installment schedule or on demand by the corporation. Be sure to document the terms of the loan in your corporate minutes as well.

2. Not charging sufficient interest

To avoid getting caught in the IRS’s “below-market loan rules” make sure you’re charging an interest rate that meets or exceeds the AFR for your loan term. One exception to the below-market loan rules is if aggregate loans from corporation to shareholder equal $10,000 or less.

Current AFRs

The IRS publishes AFRs monthly based on current market conditions. For loans made in July 2024, the AFRs are:

  • 4.95% for short-term loans of up to three years,
  • 4.40% for mid-term loans of more than three years but not more than nine years, and
  • 4.52% for long-term loans of over nine years.

These rates assume monthly compounding of interest. However, the specific AFR depends on whether it’s a demand loan or a term loan. Here’s the key difference: 

  • Demand loans allow your corporation to request repayment in full at any time with proper notice.
  • Term loans have a fixed repayment schedule and interest rate set at the loan’s origination based on the AFR for the chosen term (short, mid, or long). This type of loan offers stability and predictability to both the borrower and the corporation.

Corporate Borrowing in Action

Imagine you borrow $100,000 from your corporation to be repaid in installments over 10 years. Right now, in July 2024, the long-term AFR is 4.52% compounded monthly over the term. To avoid tax issues, your corporation would charge you this rate and report the interest income.

On the other hand, if the loan document states that the borrowed amount is a demand loan, the AFR is based on a blended average of monthly short-term AFRs for the year. If rates go up, you need to pay more interest to avoid below-market loan rules. And, if rates go down, you pay a lower interest rate.

From a tax perspective, term loans for more than nine years are because they lock in current AFRs. If interest rates drop, you can repay the loan early and secure a new loan at the lower rate.

Avoid adverse consequences

Shareholder loans are complex, especially in situations where the loan charges below-AFR interest, the shareholder stops making payments, or your corporation has more than one shareholder. Contact a Smolin advisor for guidance on how to proceed in your unique circumstance.

Maximize Giving and Minimize Taxes with the Power of Qualified Charitable Distributions
Maximize Giving and Minimize Taxes with the Power of Qualified Charitable Distributions 850 500 smolinlupinco

Are you a philanthropic person nearing or past retirement age and facing required minimum distributions (RMDs) from your traditional IRA? There is a smart strategy that allows you to support the causes you care about while reducing your tax burden: Qualified Charitable Distributions (QCDs).

Here’s how it works:

Once you reach age 70½, you can make a cash donation to an IRS-approved charity out of your IRA. This method of transferring assets to charity leverages the QCD provision so you can direct up to $105,000 of their distributions to charity in 2024 (or $210,000 for married couples). 

By making QCDs, the money given to charity counts toward your RMDs but won’t increase adjusted gross income (AGI) or generate a tax bill.

There are several important reasons to keep your donation amount out of your AGI. When distributions are taken directly out of traditional IRAs, federal income tax of up to 37% (in 2024) and possible state income taxes must be paid. A QCD avoids these taxes. 

Here are some other potential benefits:

  1. You might qualify for other tax breaks. A lower AGI can reduce the threshold for itemizers who deduct medical expenses, which are only deductible to the extent they exceed 7.5% of AGI.
  2. You can skip potential taxes on your Social Security benefits and investment income, avoiding the 3.8% net investment income tax.
  3. It might help you bypass a high-income surcharge for Medicare Part B and Part D premiums that are triggered when AGI falls above a certain level.

Note: You can’t claim a charitable contribution deduction for a QCD that is not included in your income. Also, remember that the age after which you must begin taking RMDs is now 73, but the age you can start making QCDs is 70½.

To benefit from a qualified charitable distribution for 2024, you must arrange for the payment from your IRA to go directly to a qualified charity before December 31, 2024. 

QCDs are truly a win-win. You can use them to fulfill all or part of your RMD for the year. 

Think of it as a double-duty approach, supporting a cause you care about while meeting your IRA withdrawal needs. For example, if your 2024 RMDs are $20,000 and you make a $10,000 QCD, you only need to withdraw another $10,000 to satisfy your requirement.QCDs aren’t right for everyone, though. Depending on your unique situation, additional rules and limits may apply. Contact a Smolin advisor to discuss whether this strategy makes sense for you.

Decoding Corporate Estimated Tax: Which Method is Best for You?
Decoding Corporate Estimated Tax: Which Method is Best for You? 850 500 smolinlupinco

With the next quarterly estimated tax payment deadline coming up on September 16, it’s the perfect time to brush up on the rules for computing your corporate federal estimated payments. Ideally, your business can pay the minimum amount of estimated tax without triggering any penalties for underpayment. 

But how do you determine that amount? To avoid penalties, corporations must pay estimated tax installments equal to the lowest amount calculated using one of these four methods: 

Current Year Method

Pay 25% of the tax shown on the current tax year’s return (or, if no return is filed, 25% of the tax for the current year) by each of four corporate installment due dates –  generally April 15, June 15, September 15 and December 15. If a due date falls on a Saturday, Sunday or legal holiday, the payment is due the following business day.

Preceding Year Method 

Pay 25% of the tax shown on the return for the preceding tax year by each of four installment due dates. For 2022, corporations with taxable income of $1 million or more in any of the last three tax years can only use the preceding year method to determine their first required installment payment. Additionally, this method is not available to corporations whose last tax return covered less than a full year (i.e. new corporations) or corporations without a tax return from the previous year showing some tax liability.

Annualized Income Method

Under this option, a corporation can avoid the estimated tax underpayment penalty if it pays its “annualized tax” in quarterly installments. The annualized method estimates tax based on the corporation’s taxable income for the months leading up to the installment due date. It also assumes income will stay consistent throughout the year.

Seasonal Income Method

Corporations with recurring seasonal patterns of taxable income can annualize income by assuming income earned in the current year is earned in the same pattern as in preceding years. There’s a somewhat complicated mathematical test corporations must pass to establish that they meet the threshold to qualify to use this method.

If you think your corporation might qualify, reach out to your Smolin Advisor for assistance making that determination.If you find yourself needing to adjust estimated tax payments, corporations are able to switch between the four methods during the given tax year. Let the Smolin team help you determine the best method for your corporation.

Planning For Foreign Assets in Your Estate
Planning For Foreign Assets in Your Estate 850 500 smolinlupinco

If you own foreign assets but haven’t included them in your estate plan, it’s time to revisit your plan. It’s possible to structure the ownership of your foreign assets according to the laws of the U.S. and the country where they’re located. But you probably should engage the help of an experienced estate planning advisor so you avoid these common issues.

The Burden of Double Taxation

U.S. citizens are subject to federal gift and estate taxes on all worldwide assets, regardless of where they live or the location of the assets. This means that If you own assets in other countries, you run the risk of double taxation if the assets are also subject to inheritance, estate, and other death taxes in those countries. 

A foreign death tax credit can help offset the US gift or estate tax; however, those aren’t necessarily available in all situations.  It’s possible that you might be able to get a foreign death tax credit which can lower your US estate and gift tax. But that is often dependent on tax treaties the other country has with the United States, and in some cases those credits aren’t available.

You are a U.S. citizen if:

  • You were born in the U.S., whether or not your parents were ever U.S. citizens and regardless of where you currently reside, unless you’ve renounced your citizenship, or
  • You were born outside the U.S. but at least one of your parents was a U.S. citizen at the time.

Even if you’re not a U.S. citizen, living inside the U.S. can make your worldwide assets subject to US gifts and estate taxes. This depends on the concept of “domicile”, meaning you have made the U.S. your home and plan to return there when you leave. When the U.S. is your domicile, their gift and estate taxes apply to your assets outside that country, even if you leave the country. Unless you take action to change your domicile, these taxes apply.

This may not be cause for concern. The U.S. gift and estate tax exemption amount is $13.61 million for the 2024 tax year. But remember, the exemption amount is scheduled to revert to its pre-2018 level of $5 million (indexed for inflation) as of 2026 unless an act of Congress extends it. 

Regardless, it’s best to plan for potential estate tax in the future. Additionally, married couples have different and potentially more complex rules. This is specifically true if one spouse is not a U.S. citizen nor considered a resident for estate tax purposes.

Plan to make two wills

If you want your foreign assets distributed exactly as you’d prefer, your will must be valid in both the U.S. and the other countries where assets are located. While it can be possible to prepare a single will that meets the requirements of each jurisdiction, it is still preferable to have separate wills for your foreign assets. If you opt to have a separate will, written in the foreign country’s language (if not English), it can help smooth the probate process.

Should you opt to prepare two or more wills, you should definitely work with local counsel in each foreign jurisdiction so you can be certain your wills meet each country’s requirements. If possible, it’s preferred that your U.S. and foreign advisors are able to coordinate to avoid any nullifying conflicts between the two wills. 

The bottom line is that if you own foreign assets, the wisest decision is to work with a Smolin advisor to ensure your wishes are executed in the most tax-efficient way possible. Reach out to a Smolin Advisor for support in all your estate planning needs. 

21 Estate Planning Terms You Need to Know

21 Estate Planning Terms You Need to Know
21 Estate Planning Terms You Need to Know 850 500 smolinlupinco

Whether you’re making your first estate plan or need to update an existing one, it helps to speak the language. While most people are familiar with common terms like “trust” or “will,” the meanings of other estate planning terms may feel less clear. 

Keep this glossary of key terms handy to help you navigate the estate process with more confidence

  1. Administrator 

An individual or fiduciary appointed by a court to manage an estate if no executor or personal representative has been appointed or the appointee is unable or unwilling to serve.

  1. Ascertainable standard

This legal standard, typically relating to an individual’s health, education, maintenance, and support, is used to determine what distributions are permitted from a trust.

  1. Attorney-in-fact

The individual named under a power of attorney as the agent to handle the financial and/or health affairs of another person.

  1. Codicil 

A legally binding document that makes minor modifications to an existing will without requiring a complete rewrite of the document.

  1. Community property

A form of ownership in certain states in which property acquired during a marriage is presumed to be jointly owned regardless of who paid for it.

  1. Credit shelter trust

A type of trust established to bypass the surviving spouse’s estate to take full advantage of each spouse’s federal estate tax exemption. It’s also known as a bypass trust or A-B trust.

  1. Fiduciary

An individual or entity, such as an executor or trustee, who is designated to manage assets or funds for beneficiaries and is legally required to exercise an established standard of care.

  1. Grantor trust

A trust in which the grantor retains certain control so that it’s disregarded for income tax purposes and the trust’s assets are included in the grantor’s taxable estate.

  1. Inter vivos 

This is the legal phrase used to describe various actions (such as transfers to a trust) made by an individual during his or her lifetime.

  1. Intestacy

When a person dies without a legally valid will, a situation called “intestate,” the deceased’s estate is distributed in accordance with the applicable state’s intestacy laws.

  1. Joint tenancy

An ownership right in which two or more individuals (such as a married couple) own assets, often with rights of survivorship.

  1. No-contest clause

A provision in a will or trust that ensures that an individual who pursues a legal challenge to assets will forfeit his or her inheritance or interest.

  1. Pour-over will

A type of will that is used upon death to pass ownership of assets that weren’t transferred to a revocable trust.

  1. Power of appointment

The power granted to an individual under a trust that authorizes him or her to distribute assets on the termination of his or her interest in the trust or on certain other circumstances.

  1. Power of attorney (POA)

A legal document authorizing someone to act as attorney-in-fact for another person, relating to financial and/or health matters. A “durable” POA continues if the person is incapacitated.

  1. Probate

The legal process of settling an estate in which the validity of the will is proven, the deceased’s assets are identified and distributed, and debts and taxes are paid.

  1. Qualified disclaimer

The formal refusal by a beneficiary to accept an inheritance or gift or to allow the inheritance or gift to pass to the successor beneficiary.

  1. Qualified terminable interest property (QTIP)

Property in a trust or life estate that qualifies for the marital deduction because the surviving spouse is the sole beneficiary during his or her lifetime. The assets of the QTIP trust are therefore included in the estate of the surviving spouse, that is, the spouse who is the beneficiary of the trust, not the estate of the spouse who created the trust.

  1. Spendthrift clause

A clause in a will or trust restricting the ability of a beneficiary (such as a child under a specified age) to transfer or distribute assets.

  1. Tenancy by the entirety

An ownership right between two spouses in which property automatically passes to the surviving spouse on the death of the first spouse.

  1. Tenancy in common

An ownership right in which each person possesses rights and ownership of an undivided interest in the property.

Questions? Smolin can help. 

This brief roundup isn’t an extensive list of estate planning terms. If you have questions about these terms or others that aren’t listed here, reach out to us! We’re happy to provide additional context for any estate planning concepts you need more clarity on.

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