Things You Should Never Put in Your Will

A will will a vital estate planning document, and allows you to distribute your assets and property according to your wishes. At a minimum everyone should have a will, even if you believe you do not have many assets. It is a common misconception that only rich people need estate plans. A will have a number of limitations you may not be aware of. However, there are several items that should NOT be included in a will:

Property held in a living trust or joint tenancy – property deeded to a living trust can not be refused to someone else, and a will can not change the right of survivorship in joint tenancy, which passes to the joint tenant by law. Do not let the legalese scare you. Let an attorney help you ensure that any property you leave is handled in the way you want.

Accounts with designated beneficies – financial accounts and life insurance proceeds go to beneficiaries who are designated by you via a designated beneficiary form, and can not be given to someone else through a will.

Contingency gifts – leaving assets that are contingent on the beneficiary performing a duty or act (like marrying or attending college) is not always legal. Generally speaking, you can not "manage from the grave" by making an inheritance contingent on someone getting married, changing their religion, etc.
Provisions for those with special needs – this should be done via a special needs trust.

Provisions for pets – pets do not have the legal ability to own property, so consider acquiring a pet trust to care for your pet (s). Did you know that you can leave money for the caretaker of your pet and of course choose who or what organization you would like to care for your pet.

Funeral instructions – since a will will not be read until after the funeral, leave instructions for your funeral arrangements in a letter of instruction or discuss your wishes with loved ones. It is also advisable to get funeral insurance. Save your loved ones from the hassle of chasing money immediately in the aftermath of your death.

Many of the items above can be addressed in a trust designed by your attorney. It also shows that "wills in a box" software many times will not ensure your desires are abided by. If you'd like to learn more about establishing your personal estate plan, call an attorney today.

To Your Health, Wealth & Happiness,

Walter H. Bentley III
Http://www.wbentleylaw.com

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Real Estate and the AMT: Rental Or Investment Property

The Alternative Minimum Tax is a very important consideration for taxpayers who own real estate because just about every tax rule applying to real estate is different for the AMT than it is for the Regular Tax. This article on Real Estate and the AMT will address those situations where the individual holds the real estate as an investment, typically as rental property. The differences in tax treatment between the Regular Tax and the AMT can be significant.

Interest expense

Interest paid on the mortgage taken out to acquire the property is fully deductible, both for the Regular Tax and the Alternative Minimum Tax. Unlike itemized deductions that allow a tax benefit for what amounts to personal expenses, the tax law generally allows all deductions a taxpayer has to make in the pursuit of business income. Thus, the limitations discussed in the previous article on home mortgage interest do not apply.

If, however, the equity in the rental property is used as security for an additional loan – a second mortgage, for example – then the taxpayer must look to how the proceeds of that loan are used to determine interest deductibility. If the proceeds are used for a car loan or to finance a child’s education, for example, then the interest is nondeductible personal interest. If the proceeds are used to improve the rental property, the interest is deductible.

Suggestion – it is best that taxpayers keep personal borrowings separate from business borrowings. Mixing the two creates recordkeeping challenges and can result in disputes with the IRS.

Property taxes

Property taxes paid on rental or investment property are allowed in full both for Regular Tax purposes as well as for the Alternative Minimum Tax.

Planning idea – if you have an opportunity to pay your property tax bill either this year or next, pay it in a year when you have enough income from the property so as not to generate a rental loss. This strategy can help avoid triggering the passive activity loss limitations described below.

Example – in Florida property tax bills are mailed in October, and are payable under the following discount schedule: November – 4%, December – 3%, January – 2%, February – 1%. If you have a loss from the property in 2010 but expect to generate income in 2011, do not pay your bill in November or December – forgoing that small discount could help you avoid the loss-limitation rules.

Depreciation

Depreciation is allowed for property held for investment. The portion of the cost allocable to land is not depreciable, but for the building itself and the furniture, appliances, carpeting, etc. a depreciation deduction may be taken.

Real property (this is the legal definition of the house or other building) held for rental/investment may only be depreciated for Regular Tax purposes under the “straight-line” method, over a useful life of 27.5 years. Thus, a property with $275,000 allocated to the building would be depreciated at the rate of $10,000 per year.

Personal property (this is the legal definition of things such as furniture, appliances, carpeting and the like) may be depreciated for Regular Tax purposes under an “accelerated” method over a useful life of five years. An accelerated method allows a larger depreciation deduction in the early years, in recognition of an obsolescence or decline-in-value factor that you see in new property (cars are a good example).

For purposes of the AMT, however, personal property may be depreciated only by using a straight-line method. Thus, an AMT item will be generated in the early years if the accelerated method is used.

Planning idea – for personal property consider electing the straight-line method for Regular Tax purposes. While giving up a little tax benefit from the greater depreciation in the early years, it could mean avoiding paying the AMT.

Active/passive investment rules and the “at-risk” rules

A taxpayer who is not “active” in managing investment property may not use losses from rental property to offset other income such as salaries and wages, dividends, interest, capital gains, etc. Instead, these losses are deferred until the taxpayer either sells the property or generates passive income from this or other passive investment sources.

The at-risk rules similarly deny using these types of losses to the extent the taxpayer has acquired the investment with borrowed money and does not have personal liability on the debt.

Planning idea

If these loss limitations apply, consider the planning ideas mentioned above to minimize the losses being generated each year. They are not doing you any good anyway.

Sale of the property

Several different AMT issues can arise on the sale of rental/investment property. One is that your gain or loss may be different for the AMT than it is for Regular Tax purposes. This would be caused if different depreciation methods were used. For example, if the personal property was depreciated using an accelerated method for Regular Tax purposes, then the basis in that property when calculating gain or loss on sale would be different because the straight-line method had to be used for Alternative Minimum Tax purposes.

Gain on the sale of investment property generally is capital gain, although a portion may be treated as ordinary income depending on the accelerated depreciation method was used. Capital gains in and of themselves are not an AMT item, but nonetheless they can result in AMT being paid. This is because the AMT exemption amount is phased out for taxpayers at certain income levels, so this additional income can have the result of reducing the exemption which in turn increases taxable income for purposes of the Alternative Minimum Tax.

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Factors That Affect the Cost of Travel Insurance

Travel insurance policies come in different types of packages, with all manner of options and choices. It is designed this way for a reason, of course. You would not want to pay for cover that you are illegally to need, or skimp on cover you should have.

A basic policy may be adequate, or you may find you'll be more comfortable paying a bit more to obtain higher levels of cover, as needed. It often depends on where you plan to travel. Let's say you plan to travel to a destination such as Madagascar, which has limited medical facilities. In the case of a serious medical emergency you may have to be transferred by air ambulance to another country for treatment. Therefore, you would be wise to pick a policy that offers the maximum cover for medical emergencies. It should also include cover for air ambulance and medical repatriation. If you check you may find that a very cheap policy does not include this cover.

You will need to decide whether to opt for a Single Trip or Annual Multi-trip policy. If there is any possibility that you may take more than one trip in a year the Annual policy is usually the best value for money. On many policies children are included free – which is a major saving for family holidays.

Travel insurance premiums usually increase increasing depending on where in the world you are traveling. For example, the cost of travel insurance for a British citizen traveling to Europe would be less than if they were flying long-haul to a destination such as North America or Australia.

Most travel insurance companies offer different levels of cover so that you can choose. Paying a bit more for the next level should affect the amount the insurer will pay on a claim, or increase the amount of items covered. Pay attention to the amount of Excess (Deductible) included as it may be much higher on a cheap policy. (This is the amount you have to pay towards a claim). To keep the premium very low it is often the case that levels of cover have been cut or the amount of Excess increased.

When it comes to pre-existing medical conditions the cost may increase dramatically for serious pre-existing conditions, or the insurer may not offer cover at all. Most often though the average company will agree to cover a specific condition for an extra premium, or with the understanding that any claims related to the condition are excluded. This can be a bitter pill to swallow for those that are affected.

Unfortunately, it is a fact that travel insurance for seniors is usually more expensive because of the assumed increased risk of a medical problem arising – despite the fact that our seniors are probably healthier these days than they have ever been!

Winter sports (skiing / snowboarding) insurance can be added to a typical travel insurance policy for an additional fee. Other add-ons may include cover for activities such as:

  • Business Insurance – additional premium to cover many travel-related risks associated with traveling for business
  • Golf Insurance – additional cover for mishaps relating a golf holiday to cover lost or stolen equipment, golf equipment hire, and pre-paid green fees

When it comes to activities deemed by insurers as 'Hazardous' the cover may vary very between policies and companies. It is important to check and understand which activities are covered as standard. A typical policy will include activities in which you can participate on a casual, unplanned or 'incidental' basis. An additional premium may be required to provide cover for activities that are considered planned or 'non-incidental'. Confused? Do not worry, it is not as complicated as it sounds! Here are some examples to show the difference:

'Incidental' usually refer to activities such as a bungee jump, an elephant ride or sleigh ride that you may decide to participate in on the spur of the moment. 'Non-incidental' or planned activities refer to those that are participating in a regular or non-causal basis. For example: the activity is the main purpose of the trip, such as sailing holiday, scuba diving holiday, safari, white-water rafting trip, or cycle touring.

There is no question that insurance can be a difficult subject to forgive – most people would prefer to spend their precious spare time doing something much more interesting and fun!

The bottom line really is that if you do not have time to look into it in detail, make sure that the policy you choose contains, at a minimum , adequate cover for potentially cost travel problems involving: Medical Expenses, Medical Repatriation, Air Ambulance , Personal Liability, and Legal Expenses. A good basic policy and even a backpacker policy should contain these as standard. Pay a little more and you will get more features.

Beware of that cheap policy offered as an incentive – it may not always be a good buy. You get what you pay for – and peace of mind is priceless!

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