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Pairing a Living Trust with a Pour-over will can Help Cover All Your Assets
A living trust is one of the most versatile estate planning tools available. It offers a streamlined way to manage and transfer assets while maintaining privacy and control. Unlike a traditional will, a living trust allows your assets to pass directly to your beneficiaries without going through probate. By placing assets into the trust during your lifetime, you create a clear plan for how they should be distributed, and you empower a trustee to manage them smoothly if you become incapacitated. This combination of efficiency and continuity can provide significant peace of mind for you and your family.
However, even the most carefully created living trust can’t automatically account for every asset you acquire later or forget to transfer into it. That’s where a pour-over will becomes essential.
Defining a pour-over will
A pour-over will acts as a safety net by directing any assets not already held in your living trust to be “poured over” into the trust at your death. Your trustee then distributes the assets to your beneficiaries under the trust’s terms. Although these assets may still pass through probate, the pour-over will ensures that everything ultimately ends up under the trust’s umbrella, following the same instructions and protections you’ve already put in place.
This setup offers the following benefits:
Convenience. It’s easier to have one document controlling the assets than it is to “mix and match.” With a pour-over will, it’s clear that everything goes to the trust, and then the trust document determines who gets what. That, ideally, makes it easier for the executor and trustee charged with wrapping up the estate.
Completeness. Generally, everyone maintains some assets outside of a living trust. A pour-over will addresses any items that have fallen through the cracks or that have been purposely omitted.
Privacy. In addition to conveniently avoiding probate for the assets that are titled in the trust’s name, the setup helps maintain a level of privacy that isn’t available when assets pass directly through a regular will.
Understanding the roles of your executor and trustee
Your executor must handle specific bequests included in the will, as well as the assets being transferred to the trust through the pour-over provision before the trustee takes over. (Exceptions may apply in certain states for pour-over wills.) While this may take months to complete, property transferred directly to a living trust can be distributed within weeks of a person’s death.
Therefore, this technique doesn’t avoid probate completely, but it’s generally less costly and time consuming than usual. And, if you’re thorough with the transfer of assets made directly to the living trust, the residual should be relatively small.
Note that if you hold back only items of minor value for the pour-over part of the will, your family may benefit from an expedited process. In some states, your estate may qualify for “small estate” probate, often known as “summary probate.” These procedures are easier, faster and less expensive than regular probate.
After the executor transfers the assets to the trust, it’s up to the trustee to do the heavy lifting. (The executor and trustee may be the same person, and, in fact, they often are.) The responsibilities of a trustee are similar to those of an executor, with one critical difference: They extend only to the trust assets. The trustee then adheres to the terms of the trust.
Creating a coordinated estate plan
When used together, a living trust and a pour-over will create a comprehensive estate planning structure that’s both flexible and cohesive. The trust handles the bulk of your estate efficiently and privately, while the pour-over will ensures that no assets are left out or distributed according to default state laws. This coordinated approach helps maintain consistency in how your estate is managed and can reduce stress and confusion for your loved ones.
Because living trusts and pour-over wills involve legal considerations, we recommend working with an experienced estate planning attorney to finalize the documents. We can assist you with the related tax and financial planning implications. Contact FMD to learn more.
Ease the Burden on Your Family Immediately after Your Death by Planning Now
Planning for the end of life is never easy, but including your funeral and memorial wishes in your estate plan can relieve a major burden from your loved ones. When your family is grieving, decisions about burial or cremation, service preferences, or even the type of obituary you’d like can feel overwhelming. By documenting these choices in advance, you not only help to ensure your wishes are honored but also give your family clarity and comfort.
Express your wishes
First, make your wishes known to family members. This typically includes instructions about where you’re to be buried or cremated, the type of memorial service you prefer (if any), and even the clothing you’ll be buried in. If you don’t have a next of kin or would prefer someone else to be in charge of arrangements, you can appoint another representative.
Be aware that the methods for expressing these wishes vary from state to state. With the help of your attorney, you can include a provision in your will, language in a health care proxy or power of attorney, or a separate form specifically designed for communicating your desired arrangements.
Whichever method you use, it should, at a minimum, state 1) whether you prefer burial or cremation, 2) where you wish to be buried or have your ashes interred or scattered (and any other special instructions), and 3) the person you’d like to be responsible for making these arrangements. Some people also request a specific funeral home.
Weigh your payment options
There’s a division of opinion in the financial community as to whether you should prepay funeral expenses. If you prepay and opt for a “guaranteed plan,” you lock in the prices for the arrangements, no matter how high fees may escalate before death. With a “nonguaranteed plan,” prices aren’t locked in, but the prepayment accumulates interest that may be put toward any rising costs.
When weighing whether to use a prepaid plan, the Federal Trade Commission recommends that you ask the following questions:
What happens to the money you’ve prepaid?
What happens to the interest income on prepayments placed in a trust account?
Are you protected if the funeral provider goes out of business?
Before signing off on a prepaid plan, learn whether there’s a cancellation clause in the event you change your mind.
One alternative that avoids the pitfalls of prepaid plans is to let your family know your desired arrangements and set aside funds in a payable-on-death (POD) bank account. Simply name the person who’ll handle your funeral arrangements as the beneficiary. When you die, he or she will gain immediate access to the funds without the need for probate.
Incorporate your wishes into your estate plan
Thoughtful planning today can provide lasting peace of mind for the people you care about most. Don’t wait to incorporate your wishes into your estate plan — or to update your plan if needed.
Is a QTIP Trust Right for Your Blended Family?
A qualified terminable interest property (QTIP) trust can be a valuable estate planning tool if you have a blended family. In such families — where one or both spouses have children from prior relationships — there’s often a delicate balance between providing for a current spouse and preserving assets for children from a previous marriage. A QTIP trust helps achieve this by allowing you, the grantor, to ensure that your surviving spouse is financially supported during his or her lifetime while your remaining assets ultimately go to the beneficiaries you’ve designated.
QTIP trust in action
Generally, a QTIP trust is created by the wealthier spouse, though sometimes both spouses will establish such trusts. After the QTIP trust grantor’s death, the surviving spouse receives income from the trust for life, and in some cases, may also have access to principal if the trust terms allow it.
Basically, the surviving spouse assumes a “life estate” in the trust’s assets. A life estate provides the surviving spouse with the right to receive income from the trust but not ownership rights. This means that the surviving spouse can’t sell or transfer the assets.
Estate tax considerations
From an estate tax perspective, a QTIP trust also offers advantages. Assets transferred into the trust generally qualify for the marital deduction, meaning no estate tax is due at the first spouse’s death. The estate tax is deferred until the death of the surviving spouse, potentially allowing for more efficient tax planning.
This combination of financial security for the surviving spouse and inheritance protection for children makes a QTIP trust particularly well-suited for blended families seeking fairness, clarity and peace of mind in their estate plans.
Estate planning flexibility
A QTIP trust can also make your estate plan more flexible. For example, at the time of your death, your family’s situation or the estate tax laws may have changed. The executor of your will can choose to not implement a QTIP trust if that makes the most sense. Otherwise, the executor makes a QTIP trust election on a federal estate tax return. (It’s also possible to make a partial QTIP election — that is, a QTIP election on just a portion of the estate.)
To be effective, the election must be made on a timely filed estate tax return. After the election is made, it’s irrevocable.
Right for you?
If you’ve remarried and have children from your first marriage, consider the estate planning benefits of a QTIP trust. Questions? Contact FMD for additional information.
Your Family Needs to know How to Access your Estate Planning Documents
Making sure your family will be able to locate your estate planning documents when needed is one of the most important parts of the estate planning process. Your carefully prepared will, trust or power of attorney will be useless if no one knows where to find it.
When loved ones are grieving or faced with urgent financial and medical decisions, not being able to locate key documents can create unnecessary stress, confusion and even legal complications. Here are some tips on how and where to store your estate planning documents.
Your signed, original will
There’s a common misconception that a photocopy of your signed last will and testament is sufficient. In fact, when it comes time to implement your plan, your family and representatives will need your signed original will. Typically, upon a person’s death, the original document must be filed with the county clerk and, if probate is required, with the probate court as well.
What happens if your original will isn’t found? It doesn’t necessarily mean that it won’t be given effect, but it can be a major — and costly — obstacle.
In many states, if your original will can’t be produced, there’s a presumption that you destroyed it with the intent to revoke it. Your family may be able to obtain a court order admitting a signed photocopy, especially if all interested parties agree that it reflects your wishes. But this can be a costly, time-consuming process. And if the copy isn’t accepted, the probate court will administer your estate as if you died without a will.
To avoid these issues, store your original will in a safe place and tell your family how to access it.
Storage options include:
Leaving your original will with your accountant or attorney, or
Storing your original will at home (or at the home of a family member) in a waterproof, fire-resistant safe, lockbox or file cabinet.
What about safe deposit boxes? Although this can be an option, you should check state law and bank policy to be sure that your family will be able to gain access without a court order. In many states, it can be difficult for loved ones to open your safe deposit box, even with a valid power of attorney. It may be preferable, therefore, to keep your original will at home or with a trusted advisor or family member.
If you do opt for a safe deposit box, it may be a good idea to open one jointly with your spouse or another family member. That way, the joint owner can immediately access the box in the event of your death or incapacity.
Other documents
Original trust documents should be kept in the same place as your original will. It’s also a good idea to make several copies. Unlike a will, it’s possible to use a photocopy of a trust. Plus, it’s useful to provide a copy to the person who’ll become trustee and to keep a copy to consult periodically to ensure that the trust continues to meet your needs.
For powers of attorney, living wills or health care directives, originals should be stored safely. But it’s also critical for these documents to be readily accessible in the event you become incapacitated.
Consider giving copies or duplicate originals to the people authorized to make decisions on your behalf. Also consider providing copies or duplicate originals of health care documents to your physicians to keep with your medical records.
Clear communication is key
Clearly communicating the location of your estate planning documents can help ensure your wishes are carried out promptly and accurately. Let your family, executor or trustee know where originals are stored and how to access them. Contact FMD for help ensuring your estate plan will achieve your goals.
Don’t Forget to Include a Residuary Clause in Your Will
When creating a will, most people focus on the big-ticket items — including who gets the house, the car and specific family heirlooms. But one element that’s often overlooked is the residuary clause. This clause determines what happens to the remainder of your estate — the assets not specifically mentioned in your will. Without one, even a carefully planned estate can end up in legal limbo, causing unnecessary stress, expense and conflict for your loved ones.
Defining a residuary clause
A residuary clause is the part of your will that distributes the “residue” of your estate. This residue includes any assets left after specific bequests, debts, taxes and administrative costs have been paid. It might include forgotten bank accounts, newly acquired property or investments you didn’t specifically name in your will.
For example, if your will leaves your car to your son and your jewelry to your daughter but doesn’t mention your savings account, the funds in that account would fall into your estate’s residue. The residuary clause ensures those funds are distributed according to your wishes — often to a named individual, group of heirs or charitable organization.
Omitting a residuary clause
Failing to include a residuary clause can create serious problems. When assets aren’t covered by specific instructions in a will, they’re considered “intestate property.” This means those assets will be distributed according to state intestacy laws rather than your personal wishes. In some cases, this could result in distant relatives inheriting part of your estate or assets going to individuals you never intended to benefit.
Without a residuary clause, your executor or family members may also need to seek court intervention to determine how to handle the leftover property. This adds time, legal costs and emotional strain to an already difficult process.
Moreover, the absence of a residuary clause can lead to family disputes. When the law, rather than your will, determines who gets what, heirs may disagree over how to interpret your intentions. A simple clause could prevent these misunderstandings and preserve family harmony.
Adding flexibility to your plan
A key advantage of a residuary clause is added flexibility. Life circumstances change — new assets are acquired, accounts are opened or closed, and property values fluctuate.
If your will doesn’t specifically list every asset (and most don’t), a residuary clause acts as a safety net to ensure nothing is left out. It can even account for unexpected windfalls or proceeds from insurance or lawsuits that arise after your passing.
Providing extra peace of mind
Including a residuary clause in your will is one of the simplest ways to make sure your entire estate is handled according to your wishes. It helps avoid gaps in your estate plan, minimizes legal complications and ensures your executor can distribute your assets smoothly. Contact FMD for additional details. Ask your estate planning attorney to add a residuary clause to your will.
Beware the Pitfalls of DIY Estate Planning
A do-it-yourself (DIY) estate plan may seem appealing to those who feel confident managing their own affairs and want to save money. With the abundance of online templates and legal software, it’s easier than ever to draft a will, establish powers of attorney or create a trust without professional help. However, there are significant drawbacks to consider.
Online tools vs. professional guidance
Estate planning is a legal matter, and small mistakes can result in major unintended consequences. Errors in wording, missing signatures or failure to meet state-specific requirements can render documents invalid or lead to disputes among heirs.
DIY tools often provide limited customization, which can be problematic for blended families, business owners or those with special needs beneficiaries. Additionally, these online platforms can’t provide personalized advice or foresee complex tax implications the way experienced estate planning attorneys and tax professionals can.
Although online tools can help you create individual documents — the good ones can even help you comply with applicable laws, such as ensuring the right number of witnesses to your will — they can’t help you create an estate plan. Putting together a plan means determining your objectives and coordinating a collection of carefully drafted documents designed to achieve those objectives. And in most cases, that requires professional guidance.
For example, let’s suppose Anna’s estate consists of a home valued at $1 million and an investment account with a $1 million balance. She uses a DIY tool to create a will that leaves the home to her son and the investment account to her daughter. On the surface, this seems like a fair arrangement. But suppose that by the time Anna dies, she’s sold the home and invested the proceeds in her investment account. Unless she amended her will, she’ll have inadvertently disinherited her son.
An experienced estate planning advisor would have anticipated such contingencies and ensured that Anna’s plan treated both children fairly, regardless of the specific assets in her estate.
DIY tools also fall short when a decision demands a professional’s experience rather than mere technical expertise. Online tools make it easy to name a guardian for your minor children, for example, but they can’t help you evaluate the many characteristics and factors that go into selecting the best candidate.
Don’t try this at home
Ultimately, while a DIY estate plan may be better than having no plan at all, it carries considerable risks. Professional guidance ensures your wishes are properly documented and legally sound, reducing the likelihood of costly mistakes or family conflicts. For most people, consulting a qualified estate planning advisor, including an attorney and a CPA who understands estate tax law, is a worthwhile investment in protecting one’s legacy and loved ones’ peace of mind.
Does your Estate Plan Include a Financial Power of Attorney?
Your estate planning goals likely revolve around your family, including both current and future generations. But don’t forget to take yourself into consideration. What if you become incapacitated and are unable to make financial decisions? A crucial component to include in your estate plan is a financial power of attorney (POA).
What’s a financial POA?
Without a POA, if you become incapacitated because of an accident or illness, your loved ones won’t be able to manage your finances without going through the lengthy and expensive process of petitioning the court for guardianship or conservatorship. Executing a financial POA, also known as a POA for property, protects your family from having to go through this process and helps ensure financial decisions and tasks won’t fall through the cracks.
This document appoints a trusted representative (often called an “agent”) to make financial decisions on your behalf. It authorizes your agent to manage your investments, pay your bills, file tax returns and otherwise handle your finances, within the limits you set.
Differences between springing and durable POAs
One important decision you’ll need to make is whether your POA should be “springing” — effective when certain conditions are met — or nonspringing (also known as “durable”), which is effective immediately.
A springing POA activates under certain conditions, typically when you become incapacitated and can no longer act for yourself. In most cases, to act on your behalf, your agent must present a financial institution or other third party with the POA as well as a written certification from a licensed physician stating that you’re unable to manage your financial affairs.
While a springing POA lets you retain full control over your finances while you’re able, a durable POA offers some distinct advantages:
It takes effect immediately, allowing your agent to act on your behalf for your convenience, not just when you’re incapacitated.
If you do become incapacitated, it allows your agent to act quickly on your behalf to handle urgent financial matters without the need for a physician to certify that you’ve become incapacitated. With a springing POA, the physician certification requirement can lead to delays, disputes or even litigation at a time when quick, decisive action is critical.
It may also be advantageous for elderly individuals who are mentally capable of handling their affairs but prefer to have assistance.
Durable POAs have one potential disadvantage that must be considered: You might be uncomfortable with a POA that takes effect immediately because you’re concerned that your agent may be tempted to abuse his or her authority. However, if you can’t fully trust someone with an immediate POA, it’s even riskier to rely on that person when you’re incapacitated and unable to protect yourself.
In light of the advantages of durable POAs and the potential delays caused by springing POAs, consider granting a durable POA to someone you trust completely, such as your spouse or one of your children. If you’d like added security, you could ask your attorney or another trusted advisor to hold the durable POA and deliver it to the designated agent only when you instruct them to do so or you become incapacitated.
Revisit and update your POAs
A critical estate planning companion to a financial POA is a health care POA (also known as a health care proxy). It gives a trusted person the power to make health care decisions for you. To ensure that your financial and health care wishes are carried out, consider preparing and signing both types of POA as soon as possible.
Also, don’t forget to let your family know how to gain access to the POAs in case of an emergency. Finally, financial institutions and health care providers may be reluctant to honor a POA that was executed years or decades earlier. So, it’s a good idea to sign new POAs periodically. Contact FMD with any questions regarding POAs.
Feeling Charitable? Be Sure you can Substantiate Your Gifts
As the end of the year approaches, many people give more thought to supporting their favorite charities. If you’re charitably inclined and you itemize deductions, you may be entitled to deduct your charitable donations. Note that the key word here is “may” because there are certain limitations and requirements your donations must meet.
To be eligible to claim valuable charitable deductions, you must substantiate your gifts with specific documentation. Here’s a breakdown of the rules.
Cash donations
Cash donations of any amount must be supported by one of two types of documents that display the charity’s name, the contribution date and the amount:
1. Bank records. These can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements.
2. Written communication. This can be in the form of a letter or email from the charity. A blank pledge card furnished by the charity isn’t sufficient.
In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgement (CWA) from the charity that details the following:
The contribution amount, and
A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.
A single document can meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.
If you make charitable donations via payroll deductions, you can substantiate them with a combination of an employer-provided document — such as Form W-2 or a pay stub — that shows the amount withheld and paid to the charity, and a pledge card or similar document prepared by or at the direction of the charity showing the charity’s name.
For a donation of $250 or more by payroll deduction, the pledge card or other document must also state that the charity doesn’t provide any goods or services in consideration for the donation.
Noncash donations
If your noncash donation is less than $250, you can substantiate it with a receipt from the charity showing the charity’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements, depending on the size of the donation:
Donations of $250 to $500 require a CWA.
Donations over $500, but not more than $5,000, require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property, its fair market value and the method of determining that value.
Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and file Section B of Form 8283 (signed by the appraiser and the charity). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or if any donation is valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.
Additional rules may apply for certain types of property, such as vehicles, clothing and household items, and privately held securities.
Charitable giving in 2026
Generally, charitable donations to qualified organizations are fully deductible up to certain adjusted gross income (AGI)-based limits if you itemize deductions. The One Big Beautiful Bill Act (OBBBA) creates a nonitemizer charitable deduction of up to $1,000, or $2,000 for joint filers, which goes into effect in 2026. Only cash donations qualify.
Also beginning in 2026, a 0.5% floor will apply to itemized charitable deductions. This generally means that only charitable donations in excess of 0.5% of your AGI will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible. Contact us for help developing a charitable giving strategy that aligns with the new rules under the OBBBA and times your gifts for maximum impact.
Make charitable gifts for the right reasons
For most people, saving taxes isn’t the primary motivator for making charitable donations. However, it may affect the amount you can afford to give. Substantiate your donations to ensure you can claim the deductions you deserve. If you’re unsure whether you’ve properly substantiated your charitable donation, contact FMD.
Don’t Let Beneficiary Designations Thwart your Estate Plan
For many individuals, certain assets bypass their wills or trusts and are transferred directly to loved ones through beneficiary designations. These nonprobate assets may include IRAs and certain employer-sponsored retirement accounts, life insurance policies, and some bank and brokerage accounts. This means that if you aren’t careful with your beneficiary designations, some of your assets might not be distributed as you expected. Not only does this undermine your intentions, but it can also create unnecessary conflict and hardship among surviving family members.
3 steps
Here are three steps to help ensure your beneficiary designations will align with your estate planning goals:
1. Name a primary beneficiary and a contingent beneficiary. Without a contingent beneficiary for an asset, if the primary beneficiary dies before you — and you don’t designate another beneficiary before you die — the asset will end up in your general estate and may not be distributed as you intended. In addition, certain assets are protected from your creditors, which wouldn’t apply if they were transferred to your estate. To ensure that you control the ultimate disposition of your wealth and protect that wealth from creditors, name both primary and contingent beneficiaries and don’t name your estate as a beneficiary.
2. Reconsider beneficiaries to reflect changing circumstances. Designating a beneficiary isn’t a “set it and forget it” activity. Failure to update beneficiary designations to reflect changing circumstances creates a risk that you’ll inadvertently leave assets to someone you didn’t intend to benefit, such as an ex-spouse.
It’s also important to update your designation if the primary beneficiary dies, especially if there’s no contingent beneficiary or if the contingent beneficiary is a minor. Suppose, for example, that you name your spouse as the primary beneficiary of a life insurance policy and name your minor child as the contingent beneficiary. If your spouse dies while your child is still a minor, it may be advisable to name a new primary beneficiary — such as a trust — to avoid the complications associated with leaving assets to a minor (court-appointed guardianship, etc.). Note that there are many nuances to consider when deciding to name a trust as a beneficiary.
3. Take government benefits into account. If a loved one depends on Medicaid or other government benefits — for example, a disabled child — naming that person as primary beneficiary of a retirement account or other asset may render him or her ineligible for those benefits. A better approach may be to establish a special needs trust for your loved one and name the trust as beneficiary.
Avoiding unintentional outcomes
Not paying proper attention to beneficiary designations can also expose your estate to costly delays and legal disputes. If a listed beneficiary is no longer living, or if a designation is vague or incomplete, an asset may have to go through probate, which defeats the purpose of naming beneficiaries in the first place.
This can increase expenses, delay distributions and create stress for your family during an already difficult time. Carefully making beneficiary designations and regularly reviewing and updating them helps ensure your asset distributions align with your current wishes, helps prevent disputes, and helps protect your family from unintended financial complications. Contact FMD with questions regarding your estate plan.
Intrafamily Loans Must be Handled with Care
Is one of your top estate planning goals to provide your family with financial security at the lowest tax cost? Strategies to consider include making gifts during your lifetime or bequests at death, or creating trusts and naming your loved ones as beneficiaries.
You could also make an intrafamily loan. This type of loan — where one family member lends money to another — can be an effective way to transfer wealth, provide financial support or assist with major purchases, such as a first home or a business startup. However, this strategy isn’t without drawbacks.
Why choose one?
A key benefit is flexibility. Families can often offer better loan terms than banks, such as lower interest rates, more forgiving repayment schedules and fewer fees. Intrafamily loans also keep money within the family rather than paying interest to outside lenders, which can help preserve family wealth. In addition, when properly structured, these loans can serve as a tax-efficient way to transfer money while still requiring accountability from the borrower.
From a tax perspective, intrafamily loans allow you to transfer wealth tax-free. Here’s how it works: When you make a loan to a family member, charge interest at the applicable federal rate (AFR). (Charging no interest or interest below the AFR can lead to unwelcome tax surprises.) To the extent that the borrower earns returns on the funds in excess of the interest payments on the loan (by investing them in a business opportunity, for example), the borrower pockets those earnings free of gift and estate tax.
Note that an intrafamily loan doesn’t enable the lender to avoid gift and estate tax on the loan principal itself. The outstanding balance is included in the lender’s taxable estate, even if the lender dies before the loan is paid off. In that case, either the borrower will be obligated to repay the loan to the estate, or, if the loan terms call for it to be forgiven on the lender’s death, that forgiveness will be treated as a taxable transfer.
Will the IRS treat it as a gift or loan?
To enjoy the benefits of an intrafamily loan, it’s critical to treat the transaction as a legitimate loan. Otherwise, the IRS may determine that it’s a disguised gift, which can trigger negative tax consequences (assuming you’re subject to gift and estate taxes). Generally, the IRS presumes intrafamily transactions are gifts. So, to ensure that a loan is treated as a loan, you must take steps to demonstrate that you and the borrower have a bona fide creditor-debtor relationship.
To decide whether a transfer of funds is a loan or a gift, the IRS and courts consider the “Miller” factors. A transfer is more likely to be treated as a loan if:
There was a promissory note or other evidence of indebtedness,
Interest was charged,
There was security or collateral,
There was a fixed maturity date,
A demand for repayment was made,
Actual repayment was made,
The transferee had the ability to repay,
The parties maintained records treating the transaction as a loan, and
The parties treated the transaction as a loan for federal tax purposes.
These factors aren’t exclusive. Additionally, the courts generally consider an actual expectation of repayment and intent to enforce the debt as crucial to determining whether a transfer constitutes a loan.
What are the drawbacks?
Although an intrafamily loan can be a helpful tool, families should carefully weigh the financial and emotional risks before proceeding. A significant risk is personal — mixing money with family relationships can create tension. If a borrower struggles to repay, the lender may feel taken advantage of, while the borrower may feel pressure or resentment.
If you’re considering making intrafamily loans, it’s important to observe the formalities associated with bona fide loans to ensure the desired tax treatment. Contact FMD for additional details.
A Quiet Trust Has its Benefits, but an Incentive Trust may be a Better Option
When it comes to estate planning, one of the more nuanced tools available is a quiet trust (also known as a “silent” trust). Unlike a traditional trust, a quiet trust keeps beneficiaries — often children or young adults — in the dark about its existence or details until they reach a certain age or milestone.
Many states permit quiet trusts, but these trusts have both positives and negatives. Depending on the situation, an incentive trust may be a better way to achieve your goals.
The pros
One of the biggest benefits of using a quiet trust is that it helps preserve ambition and independence. If your heirs know too early about a significant inheritance, they may lose motivation to pursue educational goals or build a career. By keeping the details private, you give them the chance to grow independently.
Quiet trusts can also reduce family conflict during your lifetime, especially if distributions are unequal or come with specific conditions. In addition, secrecy offers protection from outside pressures — such as creditors, estranged spouses or opportunistic friends — and allows time for heirs to develop the maturity needed to manage wealth responsibly.
The cons
Quiet trusts aren’t without drawbacks. Some beneficiaries may feel resentful when they eventually discover that assets were withheld from them. This secrecy can also increase the risk of legal challenges once the trust is revealed.
By keeping heirs uninformed, you also may unintentionally deprive them of valuable opportunities. For example, they might forego graduate school because they don’t want to take on student loan debt that could take decades to pay back when, in fact, the trust would eventually allow them to pay off the loan more quickly. (Or current access to the money could allow them to avoid student loan debt altogether.) And because trustees must administer the trust without beneficiary input, their decisions could later be questioned, adding tension at an already difficult time.
Another option
The idea behind a quiet trust is to avoid disincentives to responsible behavior. But it’s not clear that such a trust will actually accomplish that goal. A different approach is to design a trust that provides incentives for responsible behavior.
For example, an incentive trust might condition distributions on behavior you wish to encourage, such as obtaining a college or graduate degree, maintaining gainful employment, or pursuing worthy volunteer activities. Or it could require getting treatment for alcohol or substance abuse and maintaining a sober lifestyle.
One drawback to setting specific goals is that it may penalize a beneficiary who chooses a different, but responsible, life choice — a stay-at-home parent, for example. To build some flexibility into the trust, you might establish general principles for distributing trust funds to beneficiaries who behave responsibly but give the trustee broad discretion to apply these principles on a case-by-case basis.
Finding the right balance
A quiet trust can be a powerful way to encourage independence and protect your heirs, but it requires careful planning. Many families find success in combining secrecy with a gradual disclosure strategy — sharing information at key milestones or leaving behind a written explanation to reduce confusion and conflict.
Every family is different, and the decision to use a quiet trust or an incentive trust should be based on your goals, values and relationships. FMD can help you weigh the pros and cons and structure your plan in a way that best protects your family and your legacy.
Is a Custodial Account Right for Your Family?
If you’re considering opening an investment account for your minor child or grandchild to help him or her save for the future, a custodial account can be a useful option. Indeed, for many families, a custodial account strikes the right balance between gifting assets to a child and maintaining oversight until the child is legally an adult. It also has some benefits compared to a Trump Account, which the One Big Beautiful Bill Act will make available beginning in 2026.
What is a custodial account?
A custodial account is a financial account that an adult manages on behalf of a minor child until the child reaches the age of majority (typically 18 or 21, depending on the state). These accounts are often set up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), which provide a legal framework for transferring assets to minors without requiring a formal trust.
The adult custodian — often a parent or grandparent — has control over the account, but the assets legally belong to the child. Once the child comes of age, the account is transferred into his or her full control. Trump Accounts will be similar in that, generally, the child won’t be able to access the account funds until reaching age 18.
Custodial accounts can hold a wide range of assets, including cash, stocks, bonds, mutual funds, and, in the case of UTMA accounts, even real estate or other property. Trump Accounts, on the other hand, will generally be limited to investing in exchange-traded funds or mutual funds that track the return of a qualified index and meet certain other requirements.
Custodial account funds can be used for any purpose and often are used to save for future expenses such as a first car or a down payment on a home. Trump Account funds also can be used for any purpose. Both types of accounts can be used to fund education expenses, but they don’t offer some of the tax benefits of education-specific savings options.
What are the pluses and minuses?
One of the most significant advantages of using a custodial account is its flexibility. Indeed, unlike some savings vehicles, such as Coverdell Education Savings Accounts (ESAs), anyone can contribute to a custodial account, regardless of their income level, and there are no contribution limits. (Trump Accounts will have annual contribution limits.)
Also, as noted earlier, there are no restrictions on how the money in custodial accounts or Trump Accounts is spent. In contrast, funds invested in ESAs and Section 529 education savings plans must be spent on qualified education expenses — withdrawals not used for qualified expenses may be partially subject to a 10% penalty. (Trump Account withdrawals could also be partially subject to a 10% penalty if taken before age 59½).
Contributions to custodial accounts can also save income taxes. A child’s unearned income up to $2,700 (for 2025) is usually taxed at low rates. (Income above that threshold is usually taxed at the parents’ marginal rate.)
On the downside, other savings vehicles can offer greater tax benefits. Although custodial accounts can reduce taxes, ESAs, Section 529 plans and Trump Accounts allow earnings to grow on a tax-deferred basis. Also, ESA and 529 plan withdrawals are tax-free provided they’re spent on qualified education expenses. There may also be financial aid implications, as the assets in a custodial account are treated less favorably than certain other assets.
Trump Accounts provide another potential benefit that custodial accounts don’t: U.S. citizens children born between Jan. 1, 2025, and Dec. 31, 2028, can potentially qualify for an initial $1,000 government-funded deposit to a Trump Account.
It’s important to be aware that there’s a loss of control involved with both custodial accounts and Trump Accounts. After the child reaches the age of majority (or age 18 for Trump Accounts), he or she gains full control over the assets and can use them as he or she sees fit. If you wish to retain control longer, you’re better off opening an ESA or a 529 plan or creating a trust.
Consider all your options
Custodial accounts can be a valuable tool to build your child’s financial foundation while teaching him or her about money management. Still, it’s important to weigh the tax implications, college planning considerations and your long-term goals before opening one. Depending on the situation, another type of account may better fit your goals. Contact FMD with questions.
A Family Business Owner Needs Both an Estate Plan and a Succession Plan
For family business owners, an estate plan and a succession plan often work in tandem, ensuring that both personal and business affairs transition smoothly. Your estate plan can help ensure that your assets are distributed according to your wishes and provide contingencies in the event of your death or disability before retirement. Your succession plan can pave the way for a seamless transfer of leadership upon your retirement. Here’s how they work together.
Two types of succession
One reason transferring a family business is so challenging is the distinction between ownership and management succession. When a company is sold to a third party, ownership and management succession typically happen simultaneously. But in the family business context, there may be reasons to separate the two.
From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing estate taxes. On the other hand, you may not be ready to hand over the reins of your business or you may feel that your children aren’t yet prepared to take over.
There are several strategies owners can use to transfer ownership without immediately giving up control, including:
Placing business interests in a trust, family limited partnership or other vehicle that allows the owner to transfer substantial ownership interests to the younger generation while retaining management control,
Transferring ownership to the next generation in the form of nonvoting stock, or
Establishing an employee stock ownership plan.
Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing heirs outside the business with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth while allowing those who work in the business to take over management.
Unique conflicts
One more unique challenge presented by family businesses is that the older and younger generations may have conflicting financial needs. Fortunately, there are strategies available to generate cash flow for the owner while minimizing the burden on the next generation. They include:
An installment sale of the business to children or other family members. This provides liquidity for the owners while easing the burden on the younger generation and improving the chance that the purchase can be funded by cash flows from the business. Plus, as long as the price and terms are comparable to arm’s length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.
A grantor retained annuity trust (GRAT). By transferring business interests to a GRAT, owners obtain a variety of gift and estate tax benefits (provided they survive the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owners’ children or other beneficiaries. GRATs are typically designed to be gift-tax-free.
Because each family business is different, it’s important to work with your estate planning advisor to identify appropriate strategies in line with your objectives and resources.
Cover all your bases
Ultimately, having both a succession plan and an estate plan in place is an act of foresight and care. These plans protect loved ones, preserve wealth and provide clarity in uncertain times. Just as important, they reduce the likelihood of conflicts among heirs or stakeholders, helping to ensure that what you’ve worked hard to build continues to thrive.
However, integrating a succession plan with your estate plan can be complex and arduous. Fortunately, you don’t have to go it alone. Contact FMD for assistance.
If You’re Asked to be an Executor, Be Sure You’re Up to the Task
Make no mistake, serving as an executor (or a “personal representative” in some states) is an honor. But the title also includes significant responsibilities. So if a family member or a close friend asks you to be the executor of his or her estate, think about your answer before agreeing to the request. Let’s take a closer look at an executor’s tasks.
First steps
In a nutshell, an executor handles all jobs required to settle the deceased’s estate. The first task is to obtain certified copies of the death certificate, which are needed to notify financial institutions where the deceased had accounts. Typically, the funeral home or other organization that handled the deceased’s remains can provide them. It’s not unusual to need a dozen or more copies.
An executor must also locate and read the will, if one exists. An attorney who specializes in estate planning can advise you on the terms of the will and the laws that apply. If the deceased had a trust, additional responsibilities may be involved.
Depending on local law, you may also need to file the will in probate court, even if probate proceedings aren’t necessary. Probate, or the legal process for administering an estate, is more common with larger, more complex estates. If the deceased had minor or dependent adult children, they may need to be connected with their guardians.
A clear, logical trail of the actions taken can show that the decisions you made as executor were prudent and in the interest of the estate. This can be critical if a beneficiary contests the estate’s administration.
Take inventory of the assets
Ideally, the deceased will have created a list of his or her assets. If not, some digging may be required. For instance, reviewing the deceased’s checkbook register or bank account statements may reveal regular deposits to a retirement account or life insurance premium payments. Then you’ll need to find out the value of these assets.
If the deceased received government benefits, such as Social Security, notify the agency as soon as possible. You may need to have fine jewelry and similar assets appraised. And you’ll need to maintain insurance on some assets while they remain in the estate, such as vehicles and real estate.
File a tax return, settle debts and distribute assets to beneficiaries
The deceased’s taxes and debts are typically paid before assets are distributed to the heirs. These might include outstanding tax obligations, funeral expenses, ongoing mortgage and utility payments, and credit card bills.
You may need to file an income tax return for the year of the deceased’s death, and check that the deceased’s other tax filings are up to date. If he or she had been sick, it’s possible that some tax obligations were neglected. Estates valued at $13.99 million or less (for 2025) generally don’t need to file estate tax returns.
You should be able to open a bank account in the name of the estate to make any payments. If you’ll need to delay payments while you sort out the deceased’s assets and expenses, let creditors know as soon as possible.
Keep beneficiaries and heirs apprised of the status of the will. After the deceased’s bills and taxes have been paid, you typically can begin distributing assets according to the terms of the will. However, some states require court approval before you take this step.
Close the estate
Your final task is to close the estate. This typically occurs after debts and taxes have been paid and all remaining assets have been distributed. Some states require a court action or agreement from the estate’s beneficiaries before the estate can be closed and the executor’s responsibilities terminated.
Be aware that completing the executor’s jobs can take a year or more, depending on the complexity of the estate. Moreover, in carrying out these duties, the executor acts as a fiduciary for the estate and can be liable for improperly spending estate assets or failing to protect them. Contact FMD for additional information regarding the duties of an executor.
Using POD or TOD Accounts may Result in Undesirable Results in Certain Situations
Payable-on-death (POD) and transfer-on-death (TOD) accounts are attractive estate planning tools because they allow assets to pass directly to named beneficiaries without going through probate. This can save time, reduce administrative costs and provide your beneficiaries with quicker access to their inheritance. However, there are drawbacks to using these accounts. In some cases, they can lead to unintended — and undesirable — results.
Pluses and minuses
POD and TOD accounts are relatively simple to set up. Generally, POD is used for bank accounts while TOD is used for stocks and other securities. But they basically work the same way. You complete a form provided by your bank or brokerage house naming a beneficiary (or beneficiaries) and the assets are automatically transferred to the person (or persons) when you die. In addition, you retain control of the assets during your lifetime, meaning you can spend or invest them or close the accounts without beneficiary consent.
While POD and TOD accounts can streamline asset transfers, they also have limitations and potential drawbacks. These designations override instructions in your will, which can lead to unintended consequences if your estate plan isn’t coordinated across all accounts and assets.
They also don’t provide detailed guidance for how the beneficiary should use the funds, so they may not be the best fit if you want to place conditions or protections on the inheritance. Another consideration is that if your named beneficiary predeceases you and you haven’t updated the account, the funds may end up going through probate after all.
Not right for all estates
Despite their simplicity and low cost, POD and TOD accounts may have some significant disadvantages compared to more sophisticated planning tools, such as revocable trusts. For one thing, unlike a trust, POD or TOD accounts won’t provide the beneficiary with access to the assets in the event you become incapacitated.
Also, because the assets bypass probate, they may create liquidity issues for your estate, which can lead to unequal treatment of your beneficiaries. Suppose, for example, that you have a POD account with a $200,000 balance payable to one beneficiary and your will leaves $200,000 to another beneficiary.
When you die, the POD beneficiary automatically receives the $200,000 account. But the beneficiary under your will isn’t paid until the estate’s debts are satisfied, which may reduce his or her inheritance.
Unequal treatment can also result if you use multiple POD or TOD accounts. Say you designate a $200,000 savings account as POD for the benefit of one child and a $200,000 brokerage account as TOD for the benefit of your other child.
Despite your intent to treat the two children equally, that may not happen if, for example, the brokerage account loses value or you withdraw funds from the savings account. A more effective way to achieve equal treatment would be to list the assets in both accounts in your will or transfer them to a trust and divide your wealth equally between your two children.
Coordinate with other estate planning documents
POD and TOD accounts are often best suited for relatively straightforward transfers where you want to ensure quick, direct access for your beneficiary — such as passing a savings account to a spouse or adult child. They work well as part of a broader estate plan, especially when coordinated with a will, trust or other legal documents to ensure that your wishes are carried out consistently.
For more complex family or financial situations — blended families, minor beneficiaries, or significant assets — additional estate planning tools may be necessary to avoid conflicts and ensure long-term protection of your legacy. Contact FMD for additional details.
95% of Affluent Investors Need to Update Their Estate Plans: Are You Prepared?
According to a new report from Escalent’s Cogent Syndicated division, a staggering 95% of affluent investors need to either create or update their estate plans. With the $90 trillion intergenerational wealth transfer underway, many are not fully prepared for the complexity that lies ahead. The report titled Trajectory of Intergenerational Wealth Transfer highlights a critical gap in wealth transfer planning that could have a long-lasting impact on investors and their families.
What’s the Problem?
Many investors are still without crucial estate planning documents. In fact, more than three in ten affluent investors don’t have a will or trust. Of those who do, a large portion is young enough that their current plans may need significant updates before the average life expectancy of 79.4 years. With life’s unpredictable nature—changing assets, evolving family dynamics, and shifting tax laws—estate plans should be reassessed regularly.
Opportunities for Estate Planners
As estate planning becomes more important with the $90 trillion wealth transfer, there is a significant opportunity for financial advisors and estate planners to assist their clients in reviewing and revising their plans. Millennials and Gen Z investors are particularly underprepared, with 42% of them lacking any formal estate plan despite already building wealth and expecting to inherit more.
While there is a growing interest in online tools for estate planning, millennials and Gen Z investors indicate that they still seek support from estate planning attorneys and financial advisors. In fact, about half of millennials plan to work with these professionals when creating their estate plans, signaling the demand for a hybrid approach combining digital tools and personalized guidance.
Proactive Assessments are Key
As Steve Ethridge, Senior Director at Cogent Syndicated, states, “Many affluent investors already have estate plans, but life’s unpredictable nature means these documents will need to be reevaluated.” By offering proactive assessments, financial advisors can not only ensure that estate plans remain up-to-date but also become indispensable partners in safeguarding their clients’ legacies.
What Should You Do?
Review Your Estate Plan: Ensure that your will, trust, and other legal documents reflect your current financial situation.
Consult Professionals: Work with both estate planning attorneys and financial advisors to integrate online tools and personalized services for a comprehensive approach.
Start Planning Now: If you haven’t already, create an estate plan to protect your assets and loved ones.
With the right planning, you can make the most of your wealth transfer opportunities and protect your legacy for generations to come.
Should a Living Trust be Part of Your Estate Plan?
As its name suggests, a living trust (also known as a revocable trust) is in effect while you’re alive. It’s a legal entity into which you title assets to be managed during your lifetime and after your death.
As the trust’s grantor, you typically serve as the trustee and retain control over the assets during your lifetime. Thus, you can modify or revoke the trust at any time, allowing for adjustments as circumstances or intentions change. Let’s take a closer look at why you should consider including one in your estate plan.
Setting up a living trust
To create a living trust, engage an estate planning attorney to draw up the trust agreement. Then, title the assets you want to transfer to the trust. Assets can include real estate, financial accounts, and personal items such as art and jewelry.
You’ll also need to appoint a successor trustee, or multiple successor trustees. The trustee can be a family member or a friend, or an entity such as a bank’s trust department. In the event of incapacity, a successor trustee can seamlessly take over management of the trust without the need for court-appointed guardianship or conservatorship, preserving financial stability and decision-making continuity.
Avoiding probate
A primary advantage of a living trust is its ability to minimize the need for trust assets to be subject to probate. Probate is the process of paying off the debts and distributing the property of a deceased individual. It’s overseen by a court.
For some estates, the probate process can drag on. By avoiding it, assets in a living trust can typically be distributed more quickly while still in accordance with your instructions.
In addition, probate can be a public process. Living trusts generally can be administered privately. And if you become incapacitated, the trust document can allow another trustee to manage the assets in the living trust even while you’re alive.
Knowing the pros and cons
Living trusts have both benefits and drawbacks. If you name yourself as trustee, you can maintain control over and continue to use the trust assets while you’re alive. This includes adding or selling trust assets, as well as terminating the trust. However, after your death, the trust typically can’t be changed. At that point, the successor trustee you’ve named will distribute the assets according to your instructions.
On the flip side, a living trust can require more work to prepare and maintain than a will. And you’ll probably still need a will for property you don’t want to move into the trust. Often, this includes assets of lesser value, such as personal checking accounts. In addition, if you have minor children, you’ll need to name their guardian(s) in a will.
Who can help?
Creating a living trust typically requires some upfront effort and legal guidance. Even so, the long-term peace of mind and control it can provide may make it a worthwhile consideration. FMD can help you determine how a living trust fits within your broader estate planning goals. Contact an estate planning attorney to draft a living trust.
Create an Estate Planning Road Map Using A Letter of Instruction
Including a letter of instruction in your estate plan is a simple yet powerful way to communicate your personal wishes to your family and executor outside of formal legal documents. While not legally binding, the letter can serve as a road map to help those managing your estate carry out your wishes with fewer questions or disputes.
Contents of your letter
What your letter addresses largely depends on your personal circumstances. However, an effective letter of instruction must cover the following:
Documents and assets. State the location of your will and other important estate planning documents, such as powers of attorney, trusts, living wills and health care directives. Also, provide the location of critical documents such as your birth certificate, marriage license, divorce documents and military paperwork.
Next, create an inventory — a spreadsheet may be ideal for this purpose — of all your assets, their locations, account numbers and relevant contacts. These may include, but aren’t necessarily limited to:
Checking and savings accounts,
Retirement plans and IRAs,
Health and accident insurance plans,
Business insurance,
Life and disability income insurance, and
Stocks, bonds, mutual funds and other investment accounts.
Don’t forget about liabilities. Provide information on mortgages, debts and other loans your family should know about.
Digital assets. At this point, most or all of your financial accounts may be available through digital means, including bank accounts, securities and retirement plans. It’s critical for your letter of instruction to inform your loved ones on how to access your digital accounts. Accordingly, the letter should compile usernames and passwords for digital financial accounts as well as social media accounts, key websites and links of significance.
Funeral and burial arrangements. Usually, a letter of instruction will also include particulars about funeral and burial arrangements. If you’ve already made funeral and burial plans, spell out the details in your letter.
This can be helpful to grieving family members. You may want to mention particulars like the person (or people) you’d like to give your eulogy, the setting and even musical selections. If you prefer cremation to burial, make that abundantly clear.
Provide a list of people you want to be contacted when you pass away and their relevant information. Typically, this will include the names, phone numbers, addresses and emails of the professionals handling your finances, such as an attorney, CPA, financial planner, life insurance agent and stockbroker. Finally, write down your wishes for any special charitable donations to be made in your memory.
Express your personal thoughts
Your letter of instruction complements the legal rigor of your estate planning documents with practical and personal guidance. Indeed, one of the most valuable functions of a letter is to offer personal context or emotional guidance. You can use it to explain the reasoning behind decisions in your will, share messages with loved ones, or express values and hopes for the future. Contact FMD if you’d like additional information.
2 Options for Creating a Charitable Legacy: Lifetime Gifts and Charitable Bequests at Death
Incorporating charitable giving into your estate plan can be a thoughtful and strategic way to support causes you care about while also achieving estate planning objectives. Whether you’re driven by philanthropic goals, legacy planning or financial considerations, planned giving can be an effective tool if you’re seeking to make a lasting impact.
You generally have two options for making charitable donations: lifetime gifts or charitable bequests at death. Be aware that each approach has its pros and cons.
Lifetime gifts vs. charitable bequests
Lifetime gifts allow you to enjoy the fruits of your philanthropic efforts while you’re alive. Charitable bequests, on the other hand, can be a great way to create a legacy. The latter may also be preferable if you’re not comfortable parting with too much of your wealth during your lifetime.
From a tax perspective, charitable bequests may have certain advantages over lifetime gifts. When you leave money or property to a qualified charity in your will, your estate may be eligible for an unlimited estate tax charitable deduction.
Lifetime gifts, on the other hand, offer both income tax and estate tax benefits. Not only are you entitled to an immediate income tax deduction (subject to applicable limits), but the value of the money or property (plus any future appreciation) is removed from your taxable estate.
Of course, estate tax liability is an issue only if the value of your estate will exceed the federal gift and estate tax exemption. For 2025, the exemption amount is $13.99 million. With the passage of the One, Big, Beautiful Bill Act, beginning in 2026, the amount is permanently set at $15 million and will be adjusted annually for inflation.
Factor in the estate tax charitable deduction
If you wish to make charitable bequests in your will, and estate tax liability is a concern, careful planning is needed to avoid pitfalls that can jeopardize the estate tax charitable deduction. Generally, the gifted assets must be:
Included in your gross estate,
Transferred by you through your will, and
Donated to a qualified charity.
If you give your executor or beneficiaries the discretion to distribute assets to charity, those gifts won’t qualify for the estate tax charitable deduction. However, beneficiaries may qualify for an income tax deduction.
The charitable bequest must be “ascertainable” at the time of your death; otherwise, the estate tax charitable deduction may be denied. Generally, that means a qualified charitable recipient must be specified in your will. Note: It may be possible to make a bequest to an unnamed charity depending on applicable state law.
The amount of the bequest must also be specified. That means your will must leave a certain dollar amount, a specific asset or a percentage of your estate to a charity. It’s also possible to leave the estate’s residue — that is, the amount left after all assets have been distributed to heirs and final expenses have been paid — to a charity.
A common pitfall in drafting charitable bequests is the failure to properly identify a qualified charitable recipient. Even if the bequest is correct at the time you draft your will, things can change over time. For example, a charity may change its name, merge with another organization, lose its tax-exempt status or cease to exist. For this reason, name one or more contingent charitable beneficiaries in the event the primary charitable beneficiary can’t accept the donation.
To ensure that charitable donations are effectively integrated into your estate plan, contact FMD. We can review your plan to determine that your intentions are clearly documented, tax-advantaged and legally sound. This not only protects your legacy but also maximizes the benefit to the organizations you care about.
The One, Big, Beautiful Bill Act Provides Certainty for Estate Planning
Ever since the Tax Cuts and Jobs Act (TCJA) was signed into law in 2017, estate planners have had to take into account a looming date: January 1, 2026. While the TCJA effectively doubled the unified federal gift and estate tax exemption to $10 million (adjusted annually for inflation), it also required the amount to revert to its pre-TCJA level after 2025, unless Congress extended it. This caused uncertainty for wealthy individuals whose estates may be exposed to gift and estate taxes if the higher exemption amount were to expire.
The One, Big, Beautiful Bill Act, recently signed into law, provides a great deal of certainty for affluent families. Beginning in 2026, it permanently increases the federal gift and estate tax exemption amount to $15 million ($30 million for married couples). The amount will continue to be adjusted annually for inflation. If your estate exceeds, or is expected to exceed, the exemption amount, consider implementing planning techniques today that can help you reduce or avoid gift and estate taxes down the road.
What if you’re not currently ready to give significant amounts of wealth to the next generation? Perhaps you want to hold on to your assets in case your circumstances change in the future.
Fortunately, there are techniques you can use to take advantage of the higher exemption amount while retaining some flexibility to access your wealth should a need arise. Here are two ways to build flexibility into your estate plan.
1. SLATs
If you’re married, a spousal lifetime access trust (SLAT) can be an effective tool for removing wealth from your estate while retaining access to it. A SLAT is an irrevocable trust, established for the benefit of your children or other heirs, which permits the trustee to make distributions to your spouse if needed, indirectly benefiting you as well.
So long as you don’t serve as trustee, the assets will be excluded from your estate and, if the trust is designed properly, from your spouse’s estate as well. For this technique to work, you must fund the trust with your separate property, not marital or community property.
Keep in mind that if your spouse dies, you’ll lose the safety net provided by a SLAT. To reduce that risk, many couples create two SLATs and name each other as beneficiaries. If you employ this strategy, be sure to plan the arrangement carefully to avoid running afoul of the “reciprocal trust doctrine.”
Under the doctrine, the IRS may argue that the two trusts are interrelated and leave the spouses in essentially the same economic position they would’ve been in had they named themselves as life beneficiaries of their own trusts. If that’s the case, the arrangement may be unwound and the tax benefits erased.
2. SPATs
A special power of appointment trust (SPAT) is an irrevocable trust in which you grant a special power of appointment to a spouse or trusted friend. This person has the power to direct the trustee to make distributions to you.
Not only are the trust assets removed from your estate (and shielded from gift taxes by the current exemption), but so long as you are neither a trustee nor a beneficiary, the assets will enjoy protection against creditors’ claims.
Hold on to your assets
These strategies are just two that you can include in your estate plan to take advantage of the newly permanent exemption amount while maintaining control of your assets. Contact FMD for more details.