Things You Should Not Keep in Your Safe Deposit Box

A safe deposit box may not be the best place to keep some items.
A safe deposit box may not be the best place to keep some items.

A safe deposit box isn’t a smart choice for everything. Kiplinger’s recent article entitled “9 Things You’ll Regret Keeping in a Safe Deposit Box” advises that there are some items you might not want to lock away in your bank, which isn’t open nights, holidays, or weekends. During this pandemic, hours of operation for many businesses are reduced. Some financial institutions have temporarily closed some locations. There are other banks that require an appointment for in-branch services, like accessing your safe deposit box. This could create a headache if you’re trying to retrieve important documents or items when you need them.

Here are some items you should store elsewhere, because may need to access them more often or on short notice.

Cash. Keeping a large amount of cash in a safe deposit box isn’t a good idea. If you need it at a time when the bank is closed, you’re out of luck. In addition, the cash may lose its buying power over time because of inflation. You may also find that some banks don’t allow cash in a safe deposit box. Finally, cash in a safe deposit box isn’t protected by the FDIC. To have FDIC insurance (covering up to $250,000 per depositor per insured bank), your cash needs to be deposited in a qualifying deposit account, such as a checking account, savings account, or CD.

Your Passport.  If you need to take an emergency trip, you would not be able to pick up your passport during non-banking hours. If your travel requires a passport, there’s not much you can do about those calls in the middle of the night requiring you to travel immediately.

The Original of Your Will. It may not be a good idea to keep your original will in a safe deposit box because after your death, the bank may require the executor named in your will to obtain a court order to access the safe deposit box. That could mean a long and expensive delay before your will is probated and your estate is settled.

Funeral and Burial Instructions. Many people execute a legal document regarding the disposition of their remains or write a letter of instruction with funeral arrangements to accompany their will. The problem is that, if these instructions are hidden away in your safe deposit box, they may not be read in time to have any effect.

Uninsured Jewelry and Collectibles. Heirloom jewelry and your valuable stamp collection and rare coins are good candidates for a safe deposit box, but they must be properly insured. The FDIC doesn’t insure safe deposit box contents, and neither does the bank, unless it’s stated in your agreement.

Any Illegal or Dangerous Items. Your bank should provide you with a list of items that are not permissible to keep in a safe deposit box. This will include things like firearms, illegal drugs and hazardous materials.

You may also be interested in https://www.galliganmanning.com/does-your-estate-planning-include-your-online-account-passwords/.

Reference: Kiplinger (June 1, 2020) “9 Things You’ll Regret Keeping in a Safe Deposit Box”

 

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Removing your House from your Trust

There are ways to remove your house from your trust, but work with an estate planning attorney to do so while preserving the trust benefits!

Occasionally clients ask for assistance in removing their house from their trust.  They do so to facilitate refinancing the house, the client wants to add a relative to the title, to ensure the home is considered a residence for Medicaid purposes or some other similar issue.  There are a number of issues to consider before doing so as the recent nj.com article entitled “I want to revoke a trust on my house. What do I do?”  points out.  Whether it is a good idea to remove your home from your trust and actually doing so will require the assistance of an experienced estate planning attorney.

The answer to a question about how to get a house out of your trust is going to be in the trust terms themselves. However, if the terms of the trust are silent, the answer may be found in the trust laws in the state statutes.  If answering the question in general terms, the primary concern is whether the trust is revocable or irrevocable.

The first step is to determine whether the trust is revocable.   Most clients use revocable trusts, so assuming it is a revocable trust, the trustor (person who set up the trust) has the right to remove the house from the trust.  The trustee (probably the same person) can execute a deed conveying the property from the trust to the trustor.  That takes the property out of the trust.

In the majority of cases, this will solve the problem.  Also, if the property was removed to refinance, you can safely convey it back to the trust once the refinance is done.  Similarly, if a client wants to add someone to title to change where the property goes at death, it is often better to just change the trust terms to leave the residence to the beneficiary.  This is often better for taxes as well.

If the trust is irrevocable, it means that the house can’t be removed from the trust unless the terms of the trust permit it.  There are exceptions, such as asking a Court’s permission to revoke the trust or remove the property, or in some cases, terminating the trust with agreement of the trustee and beneficiaries, but these are more difficult options and not guaranteed.

Next, let’s look at the reason why the home was initially put in a trust.  It is important to keep these ideas in mind as removing the property from the trust may negate important benefits.   See here for the benefits https://www.galliganmanning.com/category/trusts/page/6/      There may be alternatives which accomplish the same goals as well.

If the purpose was to lower estate taxes, it may make sense to remove the house from the trust. This is especially the case if the property is in a state that doesn’t have state estate taxes.  Very few states still do.  An estate rarely meets the threshold for federal estate taxes, so clients actually save taxes by removing the property from trust.

If the property is owned by an irrevocable trust for asset protection in long-term care planning, it might make sense to keep the property in the trust.  However, if you are using a revocable trust and want to consider asset protection in long-term care planning, it is often better to keep the property in your name. This is because Medicaid may exempt your residence if you own it personally.  In our office, we prepare “Lady Bird deeds” for Texas residences which allow a client to own the residence personally, and transfer it to the trust automatically when they pass away.  This works with both asset protection planning and probate planning.

If the trust owned the property for probate avoidance, the property often will be put back into the trust or conveyed at death to the trust such as with the Lady Bird deed.

In sum, there are some reasons to remove property from a trust, but doing so should always involve an experienced estate planning to preserve the benefits of the trust and to ensure your goals are met.

Reference: nj.com (Feb. 4, 2020) “I want to revoke a trust on my house. What do I do?”

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What Exactly Is the Estate Tax?

Most people ignore the estate tax due to its high exemptions, but as some candidates may lower the exemption, it is good to familiarize yourself with it.

In the U.S., we treat the estate tax and gift tax as a single tax system with unified limits and tax rates—but it is not very well understood by many people.  Plus, the estate tax exemption is currently as high as it’s ever been, so many people ignore it assuming it doesn’t and never will apply to them.

However, the estate and gift tax has always been a political football, so it is a good idea to familiarize yourself with it in an election year.  The Motley Fool’s recent article entitled “What Is the Estate Tax in the United States?” gives us an overview of the U.S. estate and gift tax, including what assets are included, tax rates and exemptions in 2020.  As an overriding point, this blog covers federal estate and gift tax.  Some states have their own estate, gift and/or inheritance tax (tax on all transfers to beneficiaries at a lower rate) which may work differently then the federal tax.

The U.S. estate tax only impacts the wealthiest households. Let’s look at why that’s the case. Americans can exempt a certain amount of assets from their taxable estate—the lifetime exemption. This amount is modified every year to keep pace with inflation and according to policy modifications. This year, the lifetime exemption is $11.58 million per person. Therefore, if you’re married, you and your spouse can collectively exclude twice this amount from taxation ($23.16 million). To say it another way, if you’re single and die in 2020 with assets worth a total of $13 million, just $1.42 million of your estate would be taxable.

However, most Americans don’t have more than $11.58 million worth of assets when they pass away. This is why the tax only impacts the wealthiest households in the country. It is estimated that less than 0.1% of all estates are taxable. Therefore, 99.9% of us don’t owe any federal estate taxes whatsoever at death. You should also be aware that the lifetime exemption includes taxable gifts as well. If you give $1 million to your children, for example, that counts toward your lifetime exemption. As a result, the amount of assets that could be excluded from estate taxes would be then decreased by this amount at your death.

You don’t have to pay any estate or gift tax until after your death, or until you’ve used up your entire lifetime exemption. However, if you give any major gifts throughout the year, you might have to file a gift tax return with the IRS to monitor your giving. There’s also an annual gift exclusion that lets you give up to $15,000 in gifts each year without touching your lifetime exemption. There are two key points to remember:

  • The exclusion amount is per recipient. Therefore, you can give $15,000 to as many people as you want every year, and they don’t even need to be a relative; and
  • The exclusion is per donor. This means that you and your spouse (if applicable) can give $15,000 apiece to as many people as you want. If you give $30,000 to your child to help her buy their first home and you’re married, you can consider half of the gift from each spouse.

The annual gift exclusion might be an effective way for you to reduce or even eliminate estate tax liability. The tax rate is effectively 40% on all taxable estate assets.

It is also worth noting that a lot of clients want to give away assets during their life time through annual gift exclusions because they are worried about the estate tax.  However, with such a high exemption, it is often better to keep assets in your estate.  This is because generally appreciable assets in your estate receive a “step-up” in basis at your death.  This point is outside the scope of this blog, but see here for why keeping assets in your estate is probably a good thing.  https://www.galliganmanning.com/higher-estate-tax-exemption-means-you-could-save-income-taxes-by-updating-your-estate-plan/

Finally, the following kinds of assets aren’t considered part of your taxable estate:

  • Anything left to a surviving spouse, called “the unlimited marital deduction”;
  • Any amount of money or property you leave to a charity;
  • Gifts you’ve given that are less than the annual exclusion for the year in which they were given; and
  • Some types of trust assets.

Some candidates seeks to greatly lower the estate and gift tax exemption, which may lead to many more taxable estates.  If you are concerned about this tax, or are after the election, please contact our office to discuss how the estate and gift tax impacts you.

Reference: The Motley Fool (Jan. 25, 2020) “What Is the Estate Tax in the United States?”

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