Michigan Estate Planning Blog

How Young Is Too Young to Have a Will?

 

Being young and healthy is unfortunately no protection against an early death, which is why all adults aged 18 and up and especially parents need to have an estate plan, including a will, says a recent article, “You’re Young and Barely Making Ends Meet. Why You May Need a Will,” from Barron’s.

Only about 22% of young adults aged 29—44 and nearly 15% of adult Gen-Zs, aged 19—28, have estate plans. This poses risks for their spouses, if they are married, and their children, if they are parents.

A last will and testament is used to distribute your assets upon death. This is the best-known aspect of estate planning. Still, it’s only one of several documents, including a living will, also known as an advance directive, which designates who may make medical decisions on your behalf in the event of incapacity. While someone in their 20s or 30s may not have children, they may still enjoy activities like rock climbing, bungee jumping and engaging in physically demanding pursuits. People in their 20s and 30s are statistically more likely to be injured in car accidents, skiing, or while travelling.

This doesn’t mean anyone should limit their activities. However, it does mean young adults need to have estate plans in place to express their wishes in case of incapacity or death and protect themselves and their loved ones. Once these documents are prepared and executed, parents or the individual named in the living will are allowed to communicate with doctors, access medical records and be involved in a young adult’s care. Otherwise, decisions may be made by doctors and not family members.

Young adults with small children need a will to name a guardian who will be responsible for raising their children in the event both parents die unexpectedly. If there is no will, or if the will doesn’t include a guardian, a court will decide who will raise the children.

Every adult should also have a power of attorney. This gives a person of your choice the legal ability to manage your finances, including paying bills. A power of attorney can be customized to permit your agent—the person named in the POA—to perform specific actions but not others. For instance, you may want the person to be able to access accounts and pay bills, but not to sell your Pokémon card collection.

Another important aspect of an estate plan is to verify the beneficiaries named on various types of accounts. Any assets with a named beneficiary, such as an IRA, investment account, or insurance policy, will not need to go through probate and can be transferred directly to the beneficiary. However, if the IRA you opened at your first job named your last girlfriend as the beneficiary and you’ve since broken up, make sure to change the name on the account. The beneficiary designation overrides the will, so it won’t matter if you left all your assets to your fiancé; your former partner will still inherit the account.

Estate planning attorneys assist individuals at all ages and stages of life with their estate planning needs. The estate plan you need in your 20s and 30s differs from the one you need in your 60s. However, at any age, an estate plan is essential for being a responsible adult.

Reference: Barron’s (March 15, 2025) “You’re Young and Barely Making Ends Meet. Why You May Need a Will”

Estate Planning Is Essential for Unconventional Couples

 

A sad story appears in a recent issue of The Parkersburg News and Sentinel, “Legal-Ease: ‘How things might have been.’” It explains what happens to a couple who had lived together for three decades but never planned for each other’s illness or death.

When Bill became ill, his overbearing brother commandeered the hospital room and refused to let Bill’s companion of thirty years, Denise, visit. When Bill died, the same brother barred Denise from the funeral home. Denise was left out of Bill’s obituary and made to leave the home she and Bill had lived in for many years. The brother cleaned out the entire house. He also took the couple’s beloved dog.

Bill’s brother was well within his legal rights to do all of these things, since the couple had never done any estate planning to protect each other. There are many things that they could have done to protect each other.

Bill and Denise should have created and executed medical powers of attorney, naming each other to make medical decisions when they could not make their own decisions. This document would have given Denise the legal power to be in Bill’s hospital room and talk to his physicians. It would also have ensured Denise’s ability to visit Bill and arrange care for him either in a nursing home or at home.

They could have also used the Medical Power of Attorney to nominate each other to be appointed by a court as a guardian if ever needed, avoiding Bill’s brother’s taking control of care by a court order.

If the couple had created Living Wills stating their choices for end-of-life care, each could have made sure they knew what the other wanted and ensured their wishes were followed. For example, a Do Not Resuscitate (DNR) order is used to prevent healthcare providers from performing CPR on patients if they have a heart attack while incapacitated. CPR can leave patients with broken ribs and punctured lungs, and some elderly patients or those near the end of life often choose not to have CPR. Without a DNR order, healthcare providers or emergency responders must, by law, perform CPR.

At the very least, Bill and Denise should have each signed a Durable Power of Attorney, naming each other as their representative for all legal and financial matters. This would have allowed Denise to take care of Bill’s financial and business matters. Bill could have also added a provision in the POA stating that he did not want his brother to be involved.

For unmarried couples, trusts are used to provide protection for the surviving partner. For instance, if the house had been put into a trust with Denise as a trustee, Bill’s brother would not have ownership of the home, and Denise would not be unhoused.

Bill and Denise could have named each other as beneficiaries on a variety of financial accounts, including life insurance, IRA accounts and investments. Upon Bill’s death, these assets would have been paid directly to Denise.

If Bill and Denise had used wills to name each other as executors as well as heirs, they could have left all their worldly possessions to each other and served as administrators of each other’s estate. While a will is not as bullet-proof as a trust, having a will could have protected Denise from being left out in the cold.

Regardless of marital status, couples who want to take care of each other throughout their lives should meet with an estate planning attorney to protect each other. Death and incapacity aren’t limited to married couples, after all.

Reference: The Parkersburg News and Sentinel (Jan. 8, 2025) “Legal-Ease: ‘How things might have been’”

Common Estate Planning Mistakes and How to Avoid Them

 

Estate planning is something everyone should do to protect themselves while they are living, ensure that assets are distributed according to their wishes after death and prevent families from fighting over estates. A recent article from The Daily Record, “Experts urge early estate planning to avoid costly mistakes,” reminds us we never know when we’ll need our estate plan to go into effect, so having one in place is important.

Remember, estate planning isn’t just about drafting and signing legal documents. It encompasses defining family goals and facilitating conversations to discuss family values and hopes for the future.

Every estate plan needs at least three core documents:

A financial power of attorney, needed to authorize another person to make financial and legal decisions on your behalf in case of incapacity.

An advanced medical directive, which gives you the opportunity to express your preferences for medical care, if you’re not able to communicate.

A last will and testament directing how you want assets to be distributed, naming an executor to administer your estate and naming guardians for minor children.

A common mistake is attempting to use online templates for critical documents like a power of attorney or wills. While it seems convenient and inexpensive, many of these documents fail when reviewed by a court because they don’t follow state law or are contradictory.

An estate plan is a highly personalized document and requires a holistic view of the family’s life and situation. A thorough review of your life, finances and family dynamics is necessary to create an effective estate plan while you are living and after you’ve passed.

Another common error is thinking your family won’t benefit from a trust. However, any family with dependents and assets needs to at least consider a trust. Using a trust can protect your family and your assets from creditors, avoid probate and maintain privacy.

Another mistake is failing to review an estate plan every three or four years. The estate plan might not achieve goals unless it keeps up with changes in tax laws and retirement rules. For example, beneficiaries now have ten years to empty an inherited IRA, when in the past, they had a lifetime to take out withdrawals.

You may want to change your IRA beneficiary if these new rules will create a tax burden for them.

The process doesn’t have to be complicated. However, it does require taking the first step, which is making an appointment to meet with an estate planning attorney. You can anticipate a feeling of relief and peace of mind from knowing you’ve protected loved ones and yourself.

Reference: The Daily Record (Dec. 17, 2024) “Experts urge early estate planning to avoid costly mistakes”

It’s Not Too Soon for Generation X to Start Estate Planning

 

Adults born between 1965 and 1980 are often called the “sandwich generation” as they sometimes support older children who are still figuring out who they want to be when they grow up and caring for aging parents. While retirement may feel far away, says a recent article from Kiplinger, “Come as You Are: Wealth Management for Gen X,” it’s on the horizon, and planning for the future should start now.

Some of the tools used for retirement planning include 401(k) plans, which are tax-deferred plans from an employer. If your employer offers matching funds, try to contribute enough to take advantage of the match. You can also use a personal IRA to make tax-free annual contributions.

With changes from the SECURE 2.0 Act, you can open and contribute to a 529 College Savings Account and then roll a portion of unused funds into a Roth IRA once the account has been opened for 15 years and the funds have been in the account for at least five years. There are rollover limits, but this might be a good fit for retirement savings. Commonly, 529 funds are used for various educational purposes, so even if your children are past college, your grandchildren might use them for private school, not just college.

The one constant in life is change, and estate planning documents created when your children were little need to be reviewed and possibly updated. If the last time you thought about your will was when your adult children were born, you should schedule a review with your estate planning attorney. Changes like marriage, divorce, death, financial ups and downs and changes in the tax law all call for updates to wills.

If you don’t have long-term care insurance, now is the time, while you’re still relatively young and healthy enough to be able to buy it. Insurance companies now offer hybrid policies combining life insurance with a long-term care insurance policy rider.

Digital assets are a relatively new asset class requiring estate planning. Speak with your estate planning attorney to be sure your estate plan documents reflect your digital life. If you are active on social media, investing in cryptocurrency, or own an online business, you have digital assets and need to protect them.

Be proactive about estate planning to protect yourself now and your loved ones after you’ve passed. Just as retirement is on the horizon, so are the inevitable events of aging. Make an appointment to see an estate planning attorney to learn your needs, now and in the future.

Reference: Kiplinger (Oct. 7, 2024) “Come as You Are: Wealth Management for Gen X”

How to Create an Estate Plan with a Blended Family?

 

Blended families are not as unusual as they used to be. However, the financial and legal challenges of combining two families haven’t changed. If your future includes a combined family with stepchildren and stepparenting, the recent article from Kiplinger, “How to Navigate Finances as a Blended Family,” has useful information to consider.

Prenuptial Agreement. A prenup is used to clarify expectations regarding assets and debts. How assets are to be divided between children from past marriages or any future grandchildren can be addressed in a prenup and your will. If you come to the marriage already owning a home or a business, a prenup should be used to clarify your future spouse’s ownership interest. If your spouse-to-be has debts, a prenup covers how premarital debt will be handled.

Shared Expenses. Hoping financial matters will work out themselves is not a plan for a blended family. Will you set up joint checking accounts? Who will be responsible for biological or adopted children’s expenses from prior marriages? What expenses will be split? Single parents of college-age children need to know that if they marry, both spouses' incomes are used on applications for financial aid.

Estate Planning Updates. Everything related to estate planning, from your will, trusts, insurance policies and health care directives, must be updated when you marry again.

Your will must be updated to reflect your wishes for assets to go to children from a prior marriage and your spouse. It’s easy for children to be disinherited in a blended family, requiring special attention. If there is no will, the state’s laws will be applied. This may not be what you wanted.

Beneficiary designations need to be updated. The person named as a beneficiary on accounts like IRAs, SEPs, pensions and life insurance policies receives assets directly, regardless of what the will may state.

You may want to establish a Revocable Trust to take assets from your “probate estate” and provide for children. Your new spouse may be the trustee, or you may choose an adult sibling to administer the trust. You may want to update the trustee or beneficiaries if you have trusts.

Medical directives must be updated so your new spouse can be involved in your healthcare. Privacy laws are strict, and a new spouse might be shut out from making healthcare decisions without new documents. These include a Health Care Proxy, also known as a Medical Power of Attorney, HIPAA Release Forms and Living Will. Your estate planning attorney will know what documents are used in your state.

Estate planning is not as romantic as planning a wedding. It is still a sure signal to your intended and your family to prepare for a future based on responsibility and caring.

Reference: Kiplinger (Oct. 18, 2024) “How to Navigate Finances as a Blended Family”

What Is Legacy and Estate Planning?

 

Creating a last will and testament is part of planning for the future. Leaving a legacy is another. Both are part of an estate plan, which addresses planning for incapacity during your lifetime and the disposition of your property after you’ve passed. A comprehensive estate plan is a worthy endeavor, says a recent article from North Shore News, “How to secure your legacy with estate planning.”

The core components of an estate plan include a last will, power of attorney and advance directives for health care decisions, sometimes called health care power of attorney or health care proxy. Your family will face additional stress and expenses if you don’t have a last will. Your wishes for the disposition of property won’t be honored, unless you proactively have an estate plan created.

Will charitable giving be part of your legacy? This also requires advance planning. When you make donations to individual charities or use Donor Advised Funds, you create a legacy of giving and may also create tax benefits. An experienced estate planning attorney will help create a plan to maximize the tax advantages of charitable gifting.

Estate planning is especially important for women, who statistically live longer than men and tend to have lower earning power. Women need to consider who will be their caregivers if their partners predecease them or if they are solo agers.

Discussing family dynamics with an estate planning attorney can help ensure that the estate plan is created to address individual needs. Estate planning is never a one-size-fits-all plan.

Estate planning also requires regular reviews. One estate planning attorney advises her clients to revisit their estate plans every time there’s a presidential election. It’s an easy way to remember the passing of four years, which is a good time to review an estate plan.

A carefully crafted and regularly updated estate plan addresses changes to your life and the laws governing wills, trusts and retirement accounts. The SECURE Act made major changes to how assets in retirement accounts are distributed to heirs, for instance. The addition of Roth IRA and SEP accounts created huge changes in the passing of assets to the next generation.

Your estate planning attorney will give you and your family the peace of mind of knowing you’re prepared for the future, including the unexpected events, happy and sad, that life brings.

Reference: North Shore News (October, 2024) “How to secure your legacy with estate planning”

Can an Irrevocable Trust Be Changed?

 

Most irrevocable trusts are created to serve for generations. However, life and tax laws change. The terms of the trust sometimes simply don’t work for the family any more. An article from Kiplinger, “Can You Change an Irrevocable Trust? Yes, But Be Careful,” explains how changes to irrevocable trusts can be made, with a few caveats.

Changes to an irrevocable trust shouldn’t be done without the guidance of an experienced estate planning attorney. Be very clear about why you want to make any changes. Make sure that you understand what your choices are for making changes. You may learn that you can’t do exactly what you have in mind. If this is the case, find out what changes you can make. Understand the tax consequences, which could be considerable.

Why would you want to make changes to an irrevocable trust? In most cases, a trust created twenty years ago no longer serves its purpose. Other reasons include fixing errors in drafting the trust, changes in family circumstances, needing to fund a Special Needs Trust, the death or incapacity of a trustee or successor trustee and permitting investment flexibility.

There are also tax-based reasons to change an irrevocable trust. You’ll want to make changes if you want to move the trust to a state with lower income taxes, include or exclude assets from a beneficiary’s estate, convert a grantor trust to a non-grantor trust, change provisions for IRA distributions, or qualify a trust to own stock in an S corporation.

How do you actually make the changes to the trust? Start by reviewing the trust with your estate planning attorney. The trust may already contain language permitting changes to be made. The trust terms may also block your usage of certain trust strategies.

Review the state’s governing laws. Laws about trusts may have changed since the trust was originally created. Some states, including New York, Delaware and California, have “decanting” statutes, meaning one can “pour” assets from one trust into another. Your estate planning attorney will be up to date on these laws.

Consider a trust modification. Depending upon the state’s laws, you might be able to make changes without court involvement simply by obtaining and documenting beneficiaries' consent. In some states, you’ll need to obtain approval from the court.

Be mindful of tax implications. If the trust assets will be included in a beneficiary’s estate, this could be a good thing—or a bad thing. Assets subject to estate tax receive a step-up in income tax basis. Therefore, having these assets in the beneficiary’s estate might be costly.

Changes to the terms of the trust may make sense as your life progresses and laws change. Just be certain to make changes with the guidance of an experienced estate planning attorney.

Reference: Kiplinger (Aug. 26, 2024) “Can You Change an Irrevocable Trust? Yes, But Be Careful”

Top Estate Planning Mistakes to Avoid

Suppose you’ve reached retirement age and have savings, including a 401(k), IRA, investment accounts, home and life insurance policies. Congratulations! While you’ll use these assets during retirement, some of them may end up in your estate. This, according to a recent article from Rocky Mount Telegram, “Avoid these estate planning mistakes,” is why you need an estate plan.

An estate planning attorney will be able to create such a plan. They’ll also know how to avoid common mistakes made by people with less experience. Once you get your information in order, the process isn’t as daunting as you think. Here’s what you need to know to have a successful plan:

Don’t wait until the “right time.” Putting off creating a plan and taking care of the details, like funding a trust or getting documents executed, leaves many people with no plan. Illness and accidents occur without warning. Estate plans address incapacity and distribute assets. If there is no will, your state’s laws of intestacy will determine how to distribute your estate. Contact an estate planning attorney and schedule a meeting sooner, not later.

Neglecting to update an estate plan and related documents. Estate planning isn’t a “set it and forget it” process. Most people’s lives include change—marriage, divorce, moving, etc. Your estate plan needs to change too—to be updated in the event of a large event, like the birth of a second child or grandchild, moving, a change in health or financial status and to take advantage of always-changing tax laws.

Forgetting to update beneficiaries. The number of people leaving generous surprises to people no longer in their lives because they forgot to update their beneficiaries would surprise you. However, it would not surprise an estate planning attorney. People start retirement funds at their first job and forget they assigned someone to receive the assets twenty or thirty years later. Your will only addresses assets in your estate—accounts with beneficiary designations are outside the purview of your will.

Neglecting to fund a trust after it’s been created. This is another common mistake to avoid. The entire estate plan might not achieve your goals if the trust is created and not funded. Assets being moved into the trust need to be retitled, and it takes some attention to detail to ensure that this is all done.

Naming a bad executor. The executor is responsible for carrying out your wishes as expressed in your will, overseeing the distribution of assets, filing estate and final personal taxes and many other tasks. They need to be extremely well organized and financially responsible. Your legacy will be impacted if you choose someone based on family relationships instead of competence.

Most people start this process by consulting with an estate planning attorney. It will take some time and effort on your part. However, imagine your family having to dig through all your records and documents and guess what you wanted to happen. Is that not a pretty picture? A better choice is to start and finish your estate plan with an experienced attorney.

Reference: Rocky Mount Telegram (May 10, 2024) “Avoid these estate planning mistakes”

What Does Your Estate Plan Include Besides a Will?

 

A last will and testament is a part of your estate plan, one of several essential documents to explain your wishes. However, a will is only the first step, and having an estate plan becomes more important as conditions and your life change says the article “Planning Ahead: Your estate plan does not end with a will” from The Times Herald.

Assets Need to Be Divided into Those Titled in Your Name Alone, Jointly Titled and Beneficiary Designations

There are different rules for how your assets are distributed upon your death. Looking at your assets and how they are owned will clarify what will happen when you pass. The review could be a surprise, especially if you haven’t updated designated beneficiaries in a while. You might be spared any shocks if you’re married and have traditionally titled assets.

If assets like your home, bank and investment accounts are titled jointly with your spouse (known as Tenants by the Entireties), those assets will pass directly to your spouse upon your death. If you have IRAs, 401(k)s, 403(b)s, or similar retirement accounts or life insurance policies, you likely named your spouse as the beneficiary. If you’ve remarried, make sure those beneficiaries are updated.

There are exceptions. You may have kept certain assets in your name only, especially if you have been married more than once. These generally will pass by will, unless they pass by beneficiary designation.

Consider how assets will pass if you become a widow or widower or are single or divorced. In most cases, your assets are mainly in your own name. You may not have named “secondary beneficiaries,” which you could have done when the original documents were drafted. It’s not too late to do this now.

Ask yourself if you want your adult children to inherit directly or if you want assets to go to grandchildren. Note that minors cannot inherit property, so talk with your estate planning attorney about creating a trust if you wish assets to go to grandchildren. When creating a trust, you can decide if you want the funds to be given to the beneficiaries in small sums over many years, when they reach certain milestones, or to be used solely for their education.

Consider the Entire Picture—Beneficiary Designations

Many people hold assets in the equity of their home or tax-deferred funds, like IRAs. Updating these beneficiary designations is a critical step for your estate plan. A difficulty might arise if you are single, divorced or widowed and don’t specify how you want these funds to be distributed.

Keep the Paperwork in a Safe Place

Once your paperwork for your will, life insurance and tax-deferred funds are completed, keep them in a safe place and tell your beneficiaries where they are located. Online access can be tricky or impossible. So many financial institutions have been bought and sold that we can’t count on their having documents properly archived.

Reference: The Times Herald (Jan. 14, 2024) “Planning Ahead: Your estate plan does not end with a will”

What Is the Advantage of a Step-Up Basis for Estates?

The adjustment in the cost basis is sometimes overlooked in estate planning, even though it can be a tax game-changer. Under this tax provision, an inherited asset’s cost basis is determined not by what the original owner paid but by the value of the asset when it is inherited after the original owner’s death.

Since most assets appreciate over time, as explained in the article “Maximizing Inheritance With A Step Up” from Montgomery County News, this adjustment is often referred to as a “step-up” basis. A step-up can create significant tax savings when assets are sold and is a valuable way for beneficiaries to maximize their inheritance.

In most cases, assets included in the decedent’s overall estate will receive an adjustment in basis. Stocks, land, and business interests are all eligible for a basis adjustment. Others, such as Income in Respect of the Decedent (IRD), IRAs, 401(k)s, and annuities, are not eligible.

Under current tax law, the cost basis is the asset’s value on the date of the original owner’s death. The asset may technically accrue little to no gain, depending on how long they hold it before selling it and other factors regarding its valuation. The heir could face little to no capital gains tax on the asset’s sale.

Of course, it’s not as simple as this, and your estate planning attorney should review assets to determine their eligibility for a step-up. Some assets may decrease in value over time, while assets owned jointly between spouses may have different rules for basis adjustments when one of the spouses passes. The rules are state-specific, so check with a local estate planning attorney.

To determine whether the step-up basis is helpful, clarify estate planning goals. Do you own a vacation home you want to leave to your children or investments you plan to leave to grandchildren? Does your estate plan include philanthropy? Reviewing your current estate plan through the lens of a step-up in basis could lead you to make some changes.

Let’s say you bought 20,000 shares of stock ten years ago for $20 a share, with the original cost-basis being $400,000. Now, the shares are worth $40 each, for a total of $800,000. You’d like your adult children to inherit the stock.

There are several options here. You could sell the shares, pay the taxes, and give your children cash. You could directly transfer the shares, and they’d receive the same basis in your stock at $20 per share. You could also name your children as beneficiaries of the shares.

As long as the shares are in a taxable account and included in your gross estate when you die, your heirs will get an adjustment in basis based on the fair market value on the day of your passing.

If the fair market value of the shares is $50 when you die, your heirs will receive a step up in basis to $50. The gain of $30 per share will pass to your children with no tax liability.

Tax planning is part of a comprehensive estate plan, where an experienced estate planning attorney can help you and your family minimize tax liabilities.

Reference: Montgomery County News (Dec. 20, 2023) “Maximizing Inheritance With A Step Up”

Should You Gift Kids Inheritance Now, or After You’ve Passed?

 

This is a genuine dilemma facing millions of parents and grandparents as they prepare to pass an enormous amount of wealth—$73 trillion—to the next generation. There are pros and cons to both approaches, according to the article, “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind,” from Barron’s.

Giving too much too early could put parents in an economic bind in their later years. Therefore, this needs to be considered in light of today’s longer life spans. However, if you can afford to make a generous gift and your children could use the money now for a good purpose, it’s hard to justify making them wait.

How much to give is as critical as when to make the gift. The predominant concern is if you give your children too much, they won’t be motivated to earn their own wealth, or other family members will resent the gift. Estate planning attorneys and financial advisors routinely speak with families about these issues. These conversations always consider the values they want to instill in their children.

In some cases, parental support can help a child while working at an entry-level (i.e., low paying) job in their dream career. Covering the cost of rent for a few years can offer young adults a support net until they achieve financial stability.

This is very different than paying the expenses of a young adult with no career goal whose primary focus is a robust social life.

Anyone can make a yearly gift to any other person of up to $17,000 tax-free, or $34,000 per couple, but there are ways to make gifts without triggering gift taxes. Direct tuition payments to schools are tax-free. Unlike putting money into a 529 account, there is no limit to how much can be paid directly to a college or university. Parents and grandparents could also help with a downpayment on a child’s home without paying gift taxes.

Gifts don’t have to be large to have an impact. Some parents and grandparents give their children or grandchildren a small amount to start saving for retirement. A gift of a few thousand dollars during their 20s can grow into a nice sum over many decades. If the recipient has earned income, you can contribute to their IRA or Roth IRA accounts.

If assets are limited, consider giving personal possessions, such as jewelry or family heirlooms, to younger generations. You’ll get to see them enjoy their gifts, without putting your own financial situation at risk.

Whenever the decision is made to make these gifts, families should talk about their values and intentions around money.

If there are concerns about children losing an incentive to work because of the family’s wealth, a spendthrift trust might pass wealth along while controlling its distribution.

Remember that today’s generous federal estate tax rules are set to expire in 2026. Currently, individuals can gift up to about $13 million ($26 million for couples) tax-free in their estate plans. If the exemptions expire, this amount will be cut by approximately half.

Reference: Barron’s (Nov. 4, 2023) “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind”

What Three Things Do People Overlook on Estate Planning Benefits?

An estate plan is important for everyone. Without a legally enforceable estate plan, a court may apply state laws and decide how your assets will be distributed and who will raise your minor children. In addition to allowing you to direct the wrap-up of your affairs after you are gone, an estate plan can also help you reduce taxes, expedite settling your estate and reduce conflict in your family.

Yahoo Finance’s recent article, “3 Overlooked Benefits of Estate Planning,” explains that planning your estate entails making arrangements to ensure that your wishes are carried out after your death.

While some think estate planning is only for those with mansions and millions in the bank, this isn’t true. Instead, even those with modest assets can benefit from having a defined estate plan.

Remember that the estate planning process isn’t about how much you have—it’s about making sure what you do have ends up where you want it. It may also decide who will be responsible for raising any minor children who survive you.

Your estate plan can also affect taxes, the time it takes to settle your estate, your end-of-life medical care and the odds that your family will fight over it.

Deciding who gets what is the big question of many estate plans. Your estate consists of the assets, property and personal items you own at your death. This may include real estate, bank accounts, life insurance, stocks and investments, retirement accounts, and personal property like collectibles, vehicles, art and jewelry.

The documents in estate plans include a last will and testament, a living will, financial and medical powers of attorney and documents establishing various trusts.

Start your estate plan today with the help of an experienced estate planning attorney and review it periodically to accommodate marriages, divorces and births. The process often includes reviewing your property and wishes, drafting a will, naming an executor, assigning healthcare and financial proxies and settling other matters, like funeral arrangements.

Reference: Yahoo Finance (April 24, 2023) “3 Overlooked Benefits of Estate Planning”

 

What are Five Keys to Estate Planning?

 

If your family has to sort out your affairs while also dealing with the emotional fallout from losing you, they will soon realize the importance of having an estate plan, whether you are wealthy or not. They’ll also feel the pain of your failing to create one for them.
CNBC’s recent article entitled “5 key things to know when you create a will and make other end-of-life plans” explains that your estate plan spells out whom you want to make decisions and who will inherit what you own. “Estate” refers to possessions and other assets. With that in mind, here are five key things to know if you start thinking about how you’d craft an estate plan.
1. A will may not cover all your bases. A will is a core component of an estate plan. A will states whom you want to have your assets and whom you want as a guardian for minor children. Without a will in place when you die, a judge will decide who gets what or who is appointed guardian.
2. Use care when naming an executor. When you create a will, you name an executor to carry out your wishes and handle your estate. This includes liquidating or closing accounts, ensuring your assets go to the proper beneficiaries and paying any liabilities. An estate plan should also include other end-of-life documents, like a living will that details the health care you want and don’t want if you become unable to communicate those desires yourself. You also can sign a power of attorney to an agent to make decisions on your behalf if you become incapacitated.
3. Some assets get a step-up in basis. If you have assets, such as the family home, and are thinking about giving them to your children while you’re alive, it might make more sense to wait. When these assets are sold, any increase from the so-called cost basis (the value when the asset was acquired), and the sale price is subject to capital gains taxes. However, at your death, your heirs who inherit receive a “step-up in basis.” This means that the market value of the asset at your death becomes the cost basis for the heir. As a result, any appreciation prior to that is untaxed. Therefore, when the heir sells the asset, any gains (or losses) are based on the new cost basis. In comparison, if you were to gift such appreciated assets to heirs before your death, they’d assume your original cost basis — which could translate into a large tax bill when the assets are sold.
4. You may want to consider a trust. If you want your children to receive money but don’t want to give a young adult or one with poor money management total access to a sudden windfall, consider creating a trust to be the beneficiary of a particular asset. A trust holds assets on behalf of your beneficiary. The assets are left to the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents. Ask an experienced estate planning attorney to help you with this.
5. You’ll need to review your estate plan. When you have a major life change, like the birth of a child or divorce, you need to review your estate plan. If you move to a new state, check to see if you need to update any part of your plan, so it follows that state’s laws.
Reference: CNBC (March 19, 2023) “5 key things to know when you create a will and make other end-of-life plans”

How Do I Avoid Probate?

 

Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra expense and work for the estate administrator. A probated estate is also a public record anyone can review.
Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a big estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.
A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.
Joint accounts and joint title are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. Non-spouses also can establish joint title, like when a senior creates a joint account with an adult child at a financial institution. The child will automatically inherit the account when the parent passes away without probate. If the parent cannot manage his or her affairs at some point, the child can manage the finances without the need for a power of attorney.
Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once joint title is established you cannot sell, give or dispose of the property without the consent of the other joint owner.
A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the traditional term Totten trust, which is another name for a TOD or POD account (but there is no trust involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to his or her name, once the financial institution gets the death certificate.
You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights in or access to the account while the owner is alive.
Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”

What are Biggest Blunders in Wealth Transfer?

 

When it comes time to transfer what we’ve work so hard to accumulate, the way in which we transfer our wealth can have a big impact on how much of our wealth is actually received by our heirs and how much is transferred to the federal government.
Forbes’ recent article entitled “Top 7 Tax Mistakes Made in Planning a Wealth Transfer” says that tax mistakes can mean losing a lot of hard earned money, if you’re not careful. Here are some of the biggest mistakes made in wealth transfer planning.
1. IRD Taxes. Most people are unaware of this tax. It stands for “Income in Respect of the Decedent.” It’s the income tax your heirs will pay on tax-deferred assets, such as traditional IRAs, 401k’s and annuities. In many cases, these taxes will push heirs into a higher marginal tax bracket. You should plan to reduce or eliminate the IRD Tax, if you have a 401k, IRA or annuities. For example, if you gift IRA and 401k assets to charity and non-IRD assets to your heirs, you can save them in IRD Taxes! The use of a Charitable Remainder Trust can provide a tax-efficient way to create a “charitable stretch IRA” for your children or grandchildren.
2. Charitable Giving Mistakes. Most people do charitable giving with after tax cash from their income. However, this isn’t the most efficient way to give. Gifting highly appreciated securities, real estate, or even business interests can give you a double tax benefit: it can eliminate capital gains taxes and still get the charitable tax deduction.
3. Dying without a Comprehensive Estate Plan. About three-quarters of Americans die without a will. A will, by itself, subjects your assets (and your heirs) to probate. A well-designed estate plan can help reduce or eliminate both probate and estate taxes. Ask an experienced estate planning attorney about creating a comprehensive estate plan for you or review the one you have.
4. No (or Improper) Beneficiary Designations. This can result in a loss of inheritance for your family. With retirement accounts like IRAs or 401(k)s, properly designating beneficiaries is essential to avoid the loss of further income tax deferral at death. If you don’t have primary and contingent beneficiaries named on all your accounts, these assets will have to go through probate and could cost unnecessary IRD taxes.
5. Improper Titling of Business Interests. A business is frequently titled only in the name of the business owning spouse. However, when that spouse dies, the business itself must go through the costly process of probate, which can create issues for the operation of the company.
6. Bad Choices for Ownership & Beneficiary Designations on Life Insurance. Life insurance can be a great financial planning tool and provide liquidity. It can also be a great wealth transfer tool in estate planning or business planning. However, if the ownership and beneficiaries are done incorrectly, the life insurance benefits can be subject to estate taxes. Ask an experienced estate planning attorney about an irrevocable life insurance trust (ILIT).
7. Giving the Wrong Assets to your Heirs. A common mistake that people make in wealth transfer planning, is to leave a percentage of their estate to their children, another to their grandchildren and another to their favorite charities (or Donor Advised Fund) in their will or via a trust. However, this isn’t the smartest way to distribute your assets from a tax perspective. Doing so could subject them to IRD taxes. Instead, use IRA (and other IRD assets such as 401k) for your gifts to charity and, give non-IRD assets (such as cash, real estate, life insurance, or a Roth IRA) to your children and grandchildren.
Reference: Forbes (Dec. 15, 2021) “Top 7 Tax Mistakes Made in Planning a Wealth Transfer”

Can I Use a Roth IRA in Estate Planning?

There are a number of reasons to consider Roth IRAs as part of your estate planning efforts, says Think Advisor’s recent article entitled “How and Why to Use Roth IRAs in Estate Planning.” Let’s take a look:
One of the biggest estate planning benefits of a Roth IRA is the fact that there are no required minimum distributions or RMDs. This is a big estate planning tool and lets the money in the Roth grow tax-free for the benefit of a surviving spouse or other beneficiaries. This also eliminates the taxes that would otherwise need to be paid on these distributions.
Because the rules for inherited IRAs for most non-spousal beneficiaries under the Setting Every Community Up for Retirement Enhancement (Secure) Act went into effect at the beginning of 2020, Roth IRAs have become a very viable estate planning tool because beneficiaries who aren’t classified as eligible designated beneficiaries must withdraw the entire amount of their inherited IRA within 10 years of inheriting it. The Act eliminated the ability to “stretch” inherited IRAs for IRAs inherited prior to 2020 for most non-spousal beneficiaries.
For inherited traditional IRAs, the whole amount will be taxed within 10 years of inheriting. The 10-year rule also applies to inherited Roth IRAs. However, if the original account owner satisfied the five-year requirement prior to his or her death, the withdrawals from the inherited Roth IRA are tax-free. It makes a Roth a beneficial estate planning tool because taxes that are bunched into a 10-year period can substantially erode the value of an inherited traditional IRA.
For those who already have a Roth, they’re set in terms of their spouse being able to inherit the account and use it as their own. For non-spousal beneficiaries, there’s a five-year rule. For those with a Roth 401(k), it’s important to roll this account over to a Roth IRA once you leave your employer to avoid RMDs.
For those who are eligible to do so, contributing to a Roth IRA each year can help you build a Roth balance to pass on to your beneficiaries. For those who have access to a Roth 401(k) account with an employer-sponsored plan or a solo 401(k) for the self-employed, contributing to a Roth 401(k) can offer a higher contribution limit with no income restrictions, when compared to a Roth IRA. The amount in the Roth 401(k) can later be rolled over to a Roth IRA with no tax consequences, which also avoids RMDs.
A Roth IRA conversion is a strategy to looking at for passing IRA assets to non-spousal beneficiaries, either directly or as contingent beneficiaries upon the death of a surviving spouse. It’s a good way for you to prepay taxes for beneficiaries. Beyond prepaying the taxes, the five-year rule can come into play if you didn’t previously have a Roth IRA.
Whether a Roth IRA conversion makes sense as an estate planning tool depends on several variables, including your current tax situation, your age and the taxes that would be incurred by the conversion. Roth IRAs have many potential benefits as a planning tool. With the Secure Act and the changing tax and estate landscape, a Roth IRA can play a key role in your estate planning in the right circumstances. Ask an experienced estate planning attorney about whether it’s right for you.
Reference: Think Advisor (November 9, 2021) “How and Why to Use Roth IRAs in Estate Planning”

Should I Start Estate Planning Now?

The coronavirus has taken a toll on our finances, as well as our physical and mental health. As a result, it’s important to plan appropriately for your health care and financial needs in an estate plan to provide much-needed peace of mind, say Yahoo Finance’s recent article entitled “Estate Planning During a Pandemic – Quit Stalling.” The article lists the important components of a comprehensive estate plan:
Advance Health Care Directive. This is a written plan that states your wishes, in the event you can’t speak for yourself. Your wishes need to be in writing, and the document should be updated as your health changes. Review your advance health care directive with your doctor and the person you select as your health care proxy to be certain it’s completed correctly.
Health Care Power of Attorney. This legal document lets you name someone who can review your medical records and make decisions, such as how and where you should be treated. This would be applicable, if you were incapacitated and unable to make medical decisions for yourself.
Living Will. A living will is a type of advance health care directive that specifically states your end-of-life decisions in the event you are terminally ill or permanently unconscious. This covers specific medical treatments, like CPR, ventilation, pain management, tube feeding and organ and tissue donation.
Financial Power of Attorney. This document lets you name someone to help with your finances, if you become incapacitated and unable to do so. You can state how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate.
Trusts. Ask an experienced estate planning attorney about creating a trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that provides them with a small amount of money each year, increasing that amount as they get older. You can also direct that the money be specifically used for an adult child’s mortgage or student loans.
Beneficiaries. Many people forget to update their life insurance policies, bank, brokerage accounts and retirement plans. These all have beneficiary forms, which supersede a will. These should be updated, along with your estate plan, every few years and after every major life change. That’s something like a marriage, divorce, death, adoption, or birth.
Make certain that you are reviewing and updating your estate plan when you review your retirement plan each year or so.
Reference: Yahoo Finance (Oct. 31, 2021) “Estate Planning During a Pandemic – Quit Stalling”

Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

 

This is a common question with second (or third marriages) and blended families. Questions frequently arise about Social Security, investments and savings, when the husband is divorced from the children’s mother and is paying child support until each child turns 18.
Nj.com’s recent article entitled “Are my husband’s kids from another marriage due assets when he dies?” says that these questions demonstrate why estate planning is critical to revisit after a divorce. You can take action to make certain that you’re taken care of, but if you don’t do this at the time of the divorce, it could be too late.
Let’s look at what you should know about beneficiaries and wills. First, beneficiary designations supersede a will. Make sure that all beneficiaries and contingent beneficiaries are consistent with your wishes. There are beneficiary designations on retirement accounts, pensions, life insurance policies, annuities and other accounts that take precedence over what may be stated in a will.
While New Jersey does not provide for beneficiary designations on certain assets like a house, vehicles, and real estate, many other states do. For assets without a beneficiary, it’s important to determine the way in which they’re titled.
The titling of assets has an effect on how the assets will be distributed after death. Thus, when married again, spouses should review and update their wills to have an idea of how a spouse’s estate would be disbursed at his or her death.
If a husband is paying child support, divorce decrees will often dictate that he purchase life insurance to cover that obligation upon his death. Therefore, there may be a life insurance policy for the children from a first marriage.
With Social Security, if a spouse remains unmarried after the spouse’s death, he or she can claim a survivor spousal benefit as early as age 60, and if he or she is caring for the spouse’s children from the first marriage who are under 16 years of age, he or she may be entitled to receive a payment earlier. The deceased spouse’s unmarried children can also claim a survivor benefit until age 18, or longer if in high school or disabled.
Reference: nj.com (Aug. 4, 2021) “Are my husband’s kids from another marriage due assets when he dies?”

What are Top ‘To-Dos’ in Estate Planning?

 

Spotlight News’ recent article entitled “Estate Planning To-Dos” says that with the potential for substantial changes to estate and gift tax rules under the Biden administration, this may be an opportune time to create or review our estate plan. If you are not sure where to begin, look at these to-dos for an estate plan.
See an experienced estate planning attorney to discuss your plans. The biggest estate planning mistake is having no plan whatsoever. The top triggers for estate planning conversations can be life-altering events, such as a car accident or health crisis. If you already have a plan in place, visit your estate planning attorney and keep it up to date with the changes in your life.
Draft financial and healthcare powers of attorney. Estate plans contain multiple pieces that may overlap, including long-term care plans and powers of attorney. These say who has decision-making power in the event of a medical emergency.
Draft a healthcare directive. Living wills and other advance directives are written to provide legal instructions describing your preferences for medical care, if you are unable to make decisions for yourself. Advance care planning is a process that includes quality of life decisions and palliative and hospice care.
Make a will. A will is one of the foundational aspects of estate planning, However, this is frequently the only thing people do when estate planning. A huge misconception about estate planning is that a will can oversee the distribution of all assets. A will is a necessity, but you should think about estate plans holistically—as more than just a will. For example, a modern aspect of financial planning that can be overlooked in wills and estate plans is digital assets. It is also recommended that you ask an experienced estate planning attorney about whether a trust fits into your circumstances, and to help you with the other parts of a complete estate plan.
Review beneficiary designations. Retirement plans, life insurance, pensions and annuities are independent of the will and require beneficiary designations. One of the biggest estate planning mistakes is having outdated beneficiary designations, which only supports the need to review estate plans and designated beneficiaries with an experienced estate planning attorney on a regular basis.
Reference: Spotlight News (May 19, 2021) “Estate Planning To-Dos”

Why are Beneficiary Designations Important in Estate Planning?

Not having your beneficiary designations set up correctly can cause a lot of trouble after you pass away.
A designated beneficiary is named on a life insurance policy or on a financial account as the person who will receive those assets, in the event of the account holder's death.
This person usually must file a claim with a copy of the death certificate to receive the assets.
NJ Money Help’s recent article entitled “Beneficiary designation – specific or not?” says that naming a beneficiary takes a little consideration.
When naming the beneficiaries on your accounts or insurance policies, you should always consider a primary and secondary (or contingent) beneficiary.
The owner of a policy or account can name multiple beneficiaries. The proceeds or assets can be divided among more than one primary beneficiary. Likewise, there can also be more than one secondary beneficiary.
The primary beneficiary or beneficiaries are the first ones to receive the asset. The secondary beneficiary is second next in line, if the primary beneficiary dies before the owner of the asset, can’t be found, or refuses to accept the asset.
Note that simply naming beneficiaries in generic terms, such as “wife,” “spouse”’ or “children,” may create legal issues, if there’s a divorce or in case someone becomes disenfranchised.
It is always best to name your beneficiaries specifically and if they are minors, make certain you have designated a guardian.
Because our lives are constantly changing, you should review your life insurance policies, IRAs, 401(k)s, and any other instruments that require beneficiary designations every couple of years to make certain that everything is exactly the way you want.
Reference: NJ Money Help (Oct. 2017) “Beneficiary designation – specific or not?”

Why Do I Need Estate Planning?

Many people who failed to plan their estate with the help of an experienced estate planning attorney have their assets tied up in lengthy, and often messy, legal battles that were decided by people not of their choosing.
Forbes’ recent article entitled “Everyone Needs An Estate Plan: Here's What You Need To Know” says that although many of us don't have quite as much at stake financially, it doesn't mean that estate planning is any less important. In fact, leaving a legacy, passing down wealth and helping family aren’t things that are just for the ultra-rich.
The biggest misstep is not creating an estate plan at all. This is more than just a last will and includes powers of attorney, healthcare directives, a living will and a HIPAA waiver. People put this important responsibility off because they do not want to contemplate their own death. They try to avoid the subject. Some others may have complex family dynamics, and still others are hesitant to confide their complicated relationships with a lawyer. However, all these are just excuses.
We know that life is full of changes, and people get married, divorced, have children and grandchildren, relocate to different states, change careers and get inheritances. Each of these events could make you reconsider your goals. This may necessitate an update to your estate plan.
You need to review the beneficiaries on your IRAs, life insurance policies and pensions. You should look at how you want your heirs to receive your assets and any charitable or philanthropic notions. With powers of attorney, healthcare directives, living wills and HIPAA waivers, you need to think about who you’ll entrust to make important medical and financial decisions for you, if you become incapacitated. You see these critical questions and many others are fluid and prone to change every few years as your life changes.
Remember that your assets receive different treatment from the IRS based on the type and who owns legally owns them. For example, individual retirement accounts (IRAs), Roth IRAs, traditional brokerage accounts, life insurance policies and bank accounts are different than the family home. Therefore, it’s important to be mindful of which assets are left to whom.
Don’t wait. Speak to an experienced estate planning attorney to be certain that you give this process the attention it deserves for the well-being of you and your family.
Reference: Forbes (Feb. 26, 2021) “Everyone Needs An Estate Plan: Here's What You Need To Know”

How Do I Use a Charitable Remainder Trust with a Large IRA?

Since the mid-1970s, saving in a tax-deferred employer-sponsored retirement plan has been a great way to save for retirement, while also deferring current income tax. Many workers put some of their paychecks into 401(k)s, which can later be transferred to a traditional Individual Retirement Account (IRA). Others save directly in IRAs.
Kiplinger’s recent article entitled “Worried about Passing Down a Big IRA? Consider a CRT” says that taking lifetime IRA distributions can give a retiree a comfortable standard of living long after he or she gets their last paycheck. Another benefit of saving in an IRA is that the investor’s children can continue to take distributions taxed as ordinary income after his or her death, until the IRA is depleted.
Saving in a tax-deferred plan and letting a non-spouse beneficiary take an extended stretch payout using a beneficiary IRA has been a significant component of leaving a legacy for families. However, the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act), which went into effect on Jan. 1, 2020, eliminated this.
Under the new law (with a few exceptions for minors, disabled beneficiaries, or the chronically ill), a beneficiary who isn’t the IRA owner’s spouse is required to withdraw all funds from a beneficiary IRA within 10 years. Therefore, the “stretch IRA” has been eliminated.
However, there is an option for extending IRA distributions to a child beyond the 10-year limit imposed by the SECURE Act: it’s a Charitable Remainder Trust (CRT). This trust provides for distributions of a fixed percentage or fixed amount to one or more beneficiaries for life or a term of less than 20 years. The remainder of the assets will then be paid to one or more charities at the end of the trust term.
Charitable Remainder Trusts can provide that a fixed percentage of the trust assets at the time of creation will be given to the current individual beneficiaries, with the remainder being given to charity, in the case of a Charitable Remainder Annuity Trust (CRAT). There is also a Charitable Remainder Unitrust (CRUT), where the amount distributed to the individual beneficiaries will vary from year to year, based on the changing value of the trust. With both trusts, the amount of the charity’s remainder interest must be at least 10% of the value of the trust at its inception.
Implementing a CRT to extend distributions from a traditional IRA can have tax advantages and can complement the rest of a comprehensive estate plan. It can be very effective when your current beneficiary has taxable income from other sources and resources, in addition to the beneficiary IRA. It can also be effective in protecting the IRA assets from a beneficiary’s creditors or for planning with potential marital property, while providing the beneficiary a lengthy predictable income stream.
Ask an experienced estate planning attorney, if one of these trusts might fit into your comprehensive estate plan.
Reference: Kiplinger (Feb. 8, 2021) “Worried about Passing Down a Big IRA? Consider a CRT”

When Did You Last Review Beneficiary Designation Forms?

For many people, naming beneficiaries occurs when they first set up an account, and it’s rarely given much thought after that. The Street’s recent article entitled “Secure your IRA – Review Your Beneficiary Forms Now” says that many account holders aren’t aware of how important the beneficiary document is or what the consequences would be if the information is incorrect or is misplaced. Many people are also surprised to hear that wills don’t cover these accounts because they pass outside the will and are distributed pursuant to the beneficiary designation form.
If one of these accounts does not have a designated beneficiary, it may be paid to your estate. If so, the IRS says that the account has to be fully distributed within five years if the account owner passes before their required beginning date (April 1 of the year after they turn age 72). This may create a massive tax bill for your heirs.
Get a copy of your listed beneficiaries from every institution where you have your accounts, and don’t assume they have the correct information. Review the forms and make sure all beneficiaries are named and designated not just the primary beneficiary but secondary or contingent beneficiary. It is also important tomake certain that the form states clearly their percentage of the share and that it adds up to 100%. You should review these forms at any life change, like a marriage, divorce, birth or adoption of a child, or the death of a loved one.
Note that the SECURE Act changed the rules for anyone who dies after 2019. If you don’t heed these changes, it could result in 87% of your hard-earned money to go towards taxes. For retirement accounts that are inherited after December 31, 2019, there are new rules that necessitate review of beneficiary designations:
The new law created multiple “classes” of beneficiaries, and each has its own set of complex distribution rules. Make sure you understand the definition of each class of beneficiary and the effect the new rules will have on your family.
Some trusts that were named as beneficiaries of IRAs or retirement plans will no longer serve their original purpose. Ask an experienced estate planning attorney to review this.
The stretch IRA has been eliminated for most non-spouse beneficiaries. As such, most non-spouse beneficiaries will need to “empty” the IRA or retirement account within 10 years and they can’t “stretch” out their distributions over their lifetimes. Failure to comply is a 50% penalty of the amount not distributed and taxes due.
For many, the beneficiary form is their most important estate planning document but the most overlooked.
Reference: The Street (Dec. 28, 2020) “Secure your IRA – Review Your Beneficiary Forms Now”

Should I Add that to My Will?

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

What are the Biggest Estate Planning Mistakes?

One of the largest wealth transfers our nation has ever seen is about to occur, since in the next 25 years, roughly $68 trillion of wealth will be passed to succeeding generations. This event has unique planning opportunities for those who are prepared, and also big challenges due to the ever-changing legal and tax world of estate planning.
Fox Business’ article “5 estate planning disasters you'll want to avoid,” discusses the biggest estate planning errors to avoid.
Failing to properly name beneficiaries. This common estate planning mistake is easily overlooked, when setting up a retirement plan for the first time or when switching investment companies. A big advantage of adding a beneficiary to your account, is that the account will avoid probate and pass directly to your beneficiaries.
Any account with a properly listed beneficiary designation will override what is written in your will or revocable living trust. Therefore, you should review your investment and bank accounts to make certain that your beneficiaries are accurate and match your intentions.
Naming a minor as a beneficiary. This can be a problem, if they are still minors when you die. A minor won’t have the legal authority to take control of inheritance or investment accounts until they reach the age of 18 or 21 (depending on state law). When a minor receives an asset as a beneficiary, a court-appointed guardianship will be created to supervise and manage the assets on behalf of the minor. To avoid this mistake, you can name a guardian for the minor child in your will.
Forgetting to fund a trust. Creating a trust is the first step, but many people don’t properly fund their trust after it’s established.
Making a tax mess for your heirs. A significant advantages of passing on real estate or other highly appreciated investments or property, is that your beneficiaries receive what is known as a “step-up” in basis, so that they aren’t responsible for any income taxes on the appreciated assets when they are received. The exception is when inheriting retirement accounts, such as 401k’s and traditional IRAs. Except for a surviving spouse, inheriting a traditional IRA or 401k means that you are now responsible for the taxes owed. With the recent passage of the SECURE Act, most non-spouse beneficiaries must totally withdraw a 401k or IRA within 10 years. It is deemed to be ordinary income for beneficiaries, which could result in a huge tax bill for your heirs. To avoid this, you can convert some or all of your retirement account assets to a Roth IRA during your lifetime, which lets you to pay the conversion taxes at your current income tax rate—a rate that may be much lower than your children or grandchildren’s tax rate. When you pass away, any money that is passed inside a Roth IRA goes tax-free to your heirs.
Failing to create a comprehensive estate plan. Properly establishing your estate plan now, will care for your loved ones financially, and can also save them a lot of emotional stress after you’re gone.
Talk to an experienced estate planning attorney about planning now. It can really affect your family for generations. It is one of the best gifts that you can leave your family.
Reference: Fox Business (Nov. 12, 2020) “5 estate planning disasters you'll want to avoid”

Is My Estate Plan Set with a Power of Attorney?

A June 2020 Transamerica Center for Retirement Studies survey showed that a mere 28% of retirees have a financial power of attorney (POA)—and many people don’t understand that there are two types of these advance directives that serve different purposes.

MarketWatch recently published an article “Does your estate plan use the right type of Power of Attorney for you?” that says knowing how both types work is crucial in the pandemic, especially in the event that you get sick with coronavirus.

A Durable Power of Attorney for Finance can be either “springing” or “immediate.” “Durable” refers to the fact that this Power of Attorney will endure after you have lost mental or physical capacities, whether temporary or permanent. It lists when the powers would be granted to the person of your choosing and the powers end at your death.

An “immediate” Durable Power of Attorney for Finance is effective, as soon as you sign the document. In contrast, a “springing” POA for Finance means two physicians must first examine you and confirm in writing that you can no longer manage independently.

Therefore, to begin paying your bills, your agent must have those two physicians’ letters, and he or she doesn’t automatically have the authority to ask for them.

When issues, such as doctors’ letters, are required before the agent you chose can serve you, ask your estate planning attorney for guidance.

An obstacle for a Durable Power of Attorney for Finance can come upon you very fast and possibly include you and your spouse at the same time. For example, you both might get COVID-19.

The powers granted by a typical POA for Finance are often broad and permit selling and buying assets; managing your debt, car and Social Security payments; filing your tax returns; and caring for any assets not named in a trust you may have, such as your IRA.

If you recover your capacity, your agent must turn everything back over to you when you ask.

Remember that your advance directive documents are only as good as the people who implement them. You should also make certain anyone named knows that they’ll have the job, if needed. They must know where to find your POA and all other important information.

Reference: MarketWatch (Oct. 9, 2020) “Does your estate plan use the right type of Power of Attorney for you?”

How Safe Is Your IRA?

In the past it was thought that if you made an heir a beneficiary of your IRA, the money in the IRA would be safe from your heir's creditors after you passed away. This was because the inherited IRA was treated as retirement savings and not as current income. However, the United States Supreme Court recently ruled to the contrary. As Insurance News Net points out, in an article titled “Court Decision Has Implications for Estate Planning,” the full implications of this court ruling are not yet clear. The court's decision leaves open the possibility that a surviving spouse named as the beneficiary of an IRA might still be able to treat it as retirement savings, but the court did not address that issue. For other beneficiaries, however, it is clear that in most states, inherited IRAs will be much easier for creditors to claim in bankruptcy proceedings or otherwise. Such an inheritance will be treated as income, not retirement savings. If leaving an heir money in a way that is protected from the heir's creditors is an important component of your estate plan, then you need to speak to an estate planning attorney as soon as possible. If you rely on your IRA to accomplish your goals, as is common, then you will need to make other plans. There are several possibilities including a retirement trust, which is a trust designed to preserve retirement income. An attorney can help you consider other alternatives as well.

Reference: Insurance News Net (July 24, 2014) “Court Decision Has Implications for Estate Planning”

For more information, see www.jerryreiflawyer.com

 

Will Your Spouse Inherit Your IRA?

IRAs are powerful accounts uniquely suited for retirement. No surprise, then, that there are some unique rules that go into effect when an IRA is bequeathed and inherited. Whoever the inheritor of an IRA is they will have some important choices to make fairly soon. If a spouse is inheriting, they have extra leeway that’s worth putting to good use. The sorts of things an IRA inheriting spouse ought to think about don’t make the headlines quite as often. However, DailyFinance offered a helpful guide a short time ago in an article titled “When A Spouse Inherits An IRA.” You see, a spouse has more age-based decisions than a younger inheritor like an adult child. A spouse also has different choices. For instance, a spousal IRA heir can either retitle the account into an inherited IRA or roll it into their own IRA. What to do depends a great deal on the age of the spouse that has passed and the age of the surviving spouse. After all, age determines when and if you can take distributions, and likewise affects the amount in distributions to take. To roll the IRA into your own means to simply add the balances and treat it like a normal IRA from thereon out, taking distributions based on your own life expectancy when you hit age 70½. On the other hand, if it is kept as an inherited account, you might have to immediately start taking distributions (based upon the RMD of the deceased) if the account had already begun distributions. Indeed, just the difference between one account and two accounts is worthy of consideration. The original article offers a few examples on the math that comes into play, and there are a few numbers to play with. In the end, you might say the decisions should come down on a few basics. First, the balance between income and savings. This is both a question of how much money do you need and how soon, especially for retirements and medical costs. Also, factor in taxes because traditional IRA distributions are taxable. Second, depending upon the age and needs of the inheriting spouse, you might consider where the IRA is eventually going. Will you need the money in your lifetime or will you also leave it behind? How ought you to structure that?

Reference: DailyFinance (April 22, 2014) “When A Spouse Inherits An IRA”

For more information, see www.jerryreiflawyer.com

To Protect Your Heirs From Themselves: Inherited IRAs And Trustee Guidance Mid-Michigan

Sometimes all you want to do is just give away an asset to your heirs, let them do with it as they wish, and let life teach them the folly of shortsightedness if they are not good stewards. Then again, simply letting them fail in the "school for hard knocks" can be such an awful waste and not all heirs learn best by failure. This is especially true in the case of an inherited IRA. You may have many assets to leave behind for your heirs. However, an IRA is unique enough to be easily squandered in taxes, as MarketWatch noted in a recent article appropriately titled “Protect your heirs from an IRA tax trap.” IRAs are some of the most common high-value assets. That noted, because they are such unique accounts, there are some equally unique rules regarding inherited IRAs that are either amenable to diligent financial planning or a short-term high of a cash-out. When an IRA is inherited, the inheritor can elect to take regular distributions (much like the retiree who earned the funds in the first place) that will stretch over the life of the IRA. This can maximize the long-term value of the IRA and minimize the taxation. Alternatively, the inheritor can elect to immediately cash out the IRA and foot the tax bill on the whole sum. This will limit the value of the IRA now and maximize the taxation, limiting growth and the true benefit to the IRA in the first place. Either way, how do you make sure the inheritor will make the right decision? The original article has some options for you to consider. This is important if your IRA is going to be a large part of the inheritance you leave. Basically, to avoid a disaster that cannot be undone, make sure there is someone there to speak up when needed and to exercise authority over the decision. You can either name a trust as the beneficiary of the IRA, giving a trustee discretion, or you can actually structure the IRA to be a Trusteed IRA. Each option requires sound legal and financial planning advice, as the rules are some of the most complex in the entire tax code. How does IRA distribution planning fit into your overall estate plan? Is the IRA the only asset you worry about or is there more to protect? With careful legal structuring, an entire estate plan can work to protect your heirs from themselves.

Reference: MarketWatch (April 28, 2013) “Protect your heirs from an IRA tax trap”

For more information, see www.jerryreiflawyer.com

 

The Great Retirement and Estate Planning Balance, and the Great Roth IRA

Estate planning is a balancing act between yourself and your heirs. After all, even if you plan to leave it all to your heirs, you still need to be sure you can take care of yourself to the end. Because you want the best for both sides of the equation, it is well worth a measured touch. What assets should you spend down first and how should you do so to maximize both end-of-life comfort and the inheritance to leave behind? The Wall Street Journal pegs the solution in an article titled “The Most Valuable Assets to Leave for Your Heirs.” In the article there’s a strong case for the Roth IRA, and you may have heard the fanfare already. These accounts have been around for a while, but it has only been in the past few years, with the modification of a few laws, that they have become available to just about everyone. In fact, even traditional IRAs can be converted to one. IRAs are statistically both the most common bequest and the largest in all but the uppermost levels of net worth. They are double-duty assets that can provide for retirement and, if efficiently managed, can provide for loved ones thereafter. Roth IRAs are especially powerful to leave behind for tax reasons, because you pay taxes when you put the assets into the account rather than upon their distribution. The net effect of the distinctive tax treatment of Roth IRAs is tax free distributions during retirement and a bequest to leave behind that is not its own tax burden. Estate planning is a balancing act. Done right with IRAs, proper planning can be quite the boon for you and your loved ones. What other assets do you possess and how do these figure into the balance?

Reference: The Wall Street Journal (June 2, 2014) “The Most Valuable Assets to Leave for Your Heirs”

The Great Retirement and Estate Planning Balance, and the Great Roth IRA

Estate planning is a balancing act between yourself and your heirs. After all, even if you plan to leave it all to your heirs, you still need to be sure you can take care of yourself to the end. Because you want the best for both sides of the equation, it is well worth a measured touch. What assets should you spend down first and how should you do so to maximize both end-of-life comfort and the inheritance to leave behind? The Wall Street Journal pegs the solution in an article titled “The Most Valuable Assets to Leave for Your Heirs.” In the article there’s a strong case for the Roth IRA, and you may have heard the fanfare already. These accounts have been around for a while, but it has only been in the past few years, with the modification of a few laws, that they have become available to just about everyone. In fact, even traditional IRAs can be converted to one. IRAs are statistically both the most common bequest and the largest in all but the uppermost levels of net worth. They are double-duty assets that can provide for retirement and, if efficiently managed, can provide for loved ones thereafter. Roth IRAs are especially powerful to leave behind for tax reasons, because you pay taxes when you put the assets into the account rather than upon their distribution. The net effect of the distinctive tax treatment of Roth IRAs is tax free distributions during retirement and a bequest to leave behind that is not its own tax burden. Estate planning is a balancing act. Done right with IRAs, proper planning can be quite the boon for you and your loved ones. What other assets do you possess and how do these figure into the balance?

Reference: The Wall Street Journal (June 2, 2014) “The Most Valuable Assets to Leave for Your Heirs”

To Protect Your Heirs From Themselves: Inherited IRAs And Trustee Guidance Saginaw, MI

Sometimes all you want to do is just give away an asset to your heirs, let them do with it as they wish, and let life teach them the folly of shortsightedness if they are not good stewards. Then again, simply letting them fail in the "school for hard knocks" can be such an awful waste and not all heirs learn best by failure. This is especially true in the case of an inherited IRA. You may have many assets to leave behind for your heirs. However, an IRA is unique enough to be easily squandered in taxes, as MarketWatch noted in a recent article appropriately titled “Protect your heirs from an IRA tax trap.” IRAs are some of the most common high-value assets. That noted, because they are such unique accounts, there are some equally unique rules regarding inherited IRAs that are either amenable to diligent financial planning or a short-term high of a cash-out. When an IRA is inherited, the inheritor can elect to take regular distributions (much like the retiree who earned the funds in the first place) that will stretch over the life of the IRA. This can maximize the long-term value of the IRA and minimize the taxation. Alternatively, the inheritor can elect to immediately cash out the IRA and foot the tax bill on the whole sum. This will limit the value of the IRA now and maximize the taxation, limiting growth and the true benefit to the IRA in the first place. Either way, how do you make sure the inheritor will make the right decision? The original article has some options for you to consider. This is important if your IRA is going to be a large part of the inheritance you leave. Basically, to avoid a disaster that cannot be undone, make sure there is someone there to speak up when needed and to exercise authority over the decision. You can either name a trust as the beneficiary of the IRA, giving a trustee discretion, or you can actually structure the IRA to be a Trusteed IRA. Each option requires sound legal and financial planning advice, as the rules are some of the most complex in the entire tax code. How does IRA distribution planning fit into your overall estate plan? Is the IRA the only asset you worry about or is there more to protect? With careful legal structuring, an entire estate plan can work to protect your heirs from themselves.

Reference: MarketWatch (April 28, 2013) “Protect your heirs from an IRA tax trap”

For more information, see www.jerryreiflawyer.com

 

Leaving An IRA Inheritance To Grandchildren

An IRA is a retirement account. For many Americans, their IRA is a fundamental part of their retirement. On the other hand, an IRA is more than just a retirement tool. Think of an IRA as a potentially powerful estate planning tool. Properly structured, an IRA may transfer wealth to younger generations. In fact, the younger, the better. Kiplinger raised this point in its January edition with an article titled “Pass an IRA to Young Grandkids With Care.” You see, an IRA is an asset that can swiftly and easily pass outside your estate by completing a simple beneficiary form. Once passed along, a beneficiary to your IRA can either withdraw the account all at once or keep taking withdrawals over time. Under the latter option, the beneficiary may withdraw money annually from the account just as a retiree takes Required Minimum Distributions. If the beneficiary is a grandchild, then the RMD will be based on their own birthdate rather than that of the retiree who owned the account. A grandchild who wisely continues to take only the Required Minimum Distributions will harness the power of tax-deferred growth within the account. This can really add up, too. But what if you are not confident a young grandchild will act wisely with your IRA account? What then? Kiplinger offers two ideas to help preserve your IRA legacy from a grandchild’s squandering. First, consider naming the grandchild as beneficiary and appoint a custodian to watch over the account. Alternatively, consider leaving the IRA to the grandchild by way of a trust. Both options give leeway while giving direction, but also come replete with their own advantages vs. disadvantages. If you have an IRA that likely will be around to give, then be sure to carefully evaluate your options. To that end, the Kiplinger article is a good place to start.

Reference: Kiplinger (January, 2014) “Pass an IRA to Young Grandkids With Care”
For more information, see www.jerryreiflawyer.com

 

Will The Charitable Rollover Rollover?

We are well into 2014. Consequently, that also means we are well into the 2013 tax season and planning for the upcoming year. As many retirees and their advisors review changes in the tax laws and begin their planning, they have one important question in common: “Will Congress revive the IRA charity rollover?” Coincidentally, these taxpayers and advisors will be interested in a recent article in The Wall Street Journal titled “Will Congress Revive the IRA Charity Rollover?” Why all the buzz? The IRA charity rollover is a well-loved tool that creates a win-win for retired taxpayers and the charities they support. Unfortunately, it has never been a permanent part of the tax code and was just one those many provisions of the tax code that bit the dust at the end of last year. What is an IRA charity rollover? It allows a taxpayer who is already required to take “Required Minimum Distributions” to direct their required distribution directly into the hands of charity. As a result, the taxpayer pays no income taxes on the distribution and the charity enjoys 100% of the distribution tax-free. What is not to like about that? With the IRA charity rollover gone, retirees and their advisors now have to shift their priorities and tools to minimize the tax bite and still accomplish all of their financial goals. Alternatively, you take the author’s lead and try waiting to see if Congress reinstates this beloved option. Will Congress revive the IRA charity rollover? That is the question.

Reference: The Wall Street Journal (January 25, 2014) “Will Congress Revive the IRA Charity Rollover?”

 For more information, see www.jerryreiflawyer.com

For Want Of A Beneficiary Will The IRA Be Lost? Saginaw, Michigan

Probate can be a difficult and long process. In fact, anything involving the court system is rarely quick and painless. Fortunately, IRAs can easily transfer to your loved ones outside of probate simply by completing a beneficiary designation form. Well what if there was no beneficiary designation form completed? How do the heirs or the executor figure this one out? The slightly messy situation of an IRA left without a beneficiary was tackled recently by Ed Slott’s blog, The Slott Report. The article, titled “There is No Beneficiary on the Retirement Account: Now What?,” is the perfect encouragement to ensure that every beneficiary form is filled out and up to date. The good news is that many accounts have a built-in default to the surviving spouse or children of the owner. Problem: What if that runs contrary to your estate plan? Alternatively, what if the account has no default? In all likelihood the account will then default to your probate estate and will be treated as any old bank account going through probate. Aside from probate itself, there are lots of rules regarding how IRAs can be inherited and used by the inheritor. They must take distributions just like you do, but when the IRA defaults to your probate estate it gets messy – and fast. The IRA can be assigned/transferred into a properly titled new account, but then again some IRA custodians simply refuse to do this, making the irreversible and catastrophically taxable choice to distribute the entire account to the estate. Simply put, an IRA not acting like an IRA within the estate plan is messy. It is easily avoidable by filling out the beneficiary form and keeping it up to date. In some situations this requires being proactive. For example, when a surviving spouse inherits an IRA but passes before naming a new designated beneficiary to the account.

Reference: The Slott Report (January 9, 2014) “There is No Beneficiary on the Retirement Account: Now What?”

For more information, see www.jerryreiflawyer.com

Are Your Beneficiary Designations Up-To-Date? Saginaw, Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

Are Your Beneficiary Designations Up-To-Date? Saginaw, Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

For Want Of A Beneficiary Will The IRA Be Lost? Mid-Michigan

Probate can be a difficult and long process. In fact, anything involving the court system is rarely quick and painless. Fortunately, IRAs can easily transfer to your loved ones outside of probate simply by completing a beneficiary designation form. Well what if there was no beneficiary designation form completed? How do the heirs or the executor figure this one out? The slightly messy situation of an IRA left without a beneficiary was tackled recently by Ed Slott’s blog, The Slott Report. The article, titled “There is No Beneficiary on the Retirement Account: Now What?,” is the perfect encouragement to ensure that every beneficiary form is filled out and up to date. The good news is that many accounts have a built-in default to the surviving spouse or children of the owner. Problem: What if that runs contrary to your estate plan? Alternatively, what if the account has no default? In all likelihood the account will then default to your probate estate and will be treated as any old bank account going through probate. Aside from probate itself, there are lots of rules regarding how IRAs can be inherited and used by the inheritor. They must take distributions just like you do, but when the IRA defaults to your probate estate it gets messy – and fast. The IRA can be assigned/transferred into a properly titled new account, but then again some IRA custodians simply refuse to do this, making the irreversible and catastrophically taxable choice to distribute the entire account to the estate. Simply put, an IRA not acting like an IRA within the estate plan is messy. It is easily avoidable by filling out the beneficiary form and keeping it up to date. In some situations this requires being proactive. For example, when a surviving spouse inherits an IRA but passes before naming a new designated beneficiary to the account

Reference: The Slott Report (January 9, 2014) “There is No Beneficiary on the Retirement Account: Now What?”

For more information, see www.jerryreiflawyer.com

.

Protecting Your IRA From Your Kids Saginaw, Michigan

The common IRA is uncommonly powerful, but only if you know how to use it right. In fact, your IRA can actually serve estate planning purposes beyond simple retirement funding. Interested? If yes, then you need to consider a “trusteed IRA.” A good place to start your education is a recent MarketWatch article titled “Trusteed IRAs Can Help Heirs Manage Inheritance.” Basically, IRAs are fairly tidy little retirement accounts because they can be passed on to your heirs, thereby passing on some potentially nice tax advantages and a growing account outside the probate process. When inherited, IRAs still have to comply with a host of tax rules, and an heir can either take a lump sum upfront or figure out their own Required Minimum Distribution (RMD) pattern. On the other hand, a trusteed IRA has that “trustee” – the same role that drives the engine of a full trust agreement – to watch over matters and guide the IRA from retirement account to a guided wealth transfer tool. The trusteed IRA is an interesting option for a healthy middle slice of Americans planning their estates. Case in point, U.S. Bank describes the tool as best suited for accounts worth at least $2 million. Whether or not it is right for you is another question. What is it you have to leave in terms of IRAs? Have you considered how and why you want to leave it to loved ones, even those who may not be as financially mature as you would like? How will you protect heirs from their own bad choices? Fortunately, there are many ways to accomplish your goals. If a trusteed IRA is not the ticket for you, then there are other alternatives to evaluate, like the stand-alone IRA trust.

Reference: The Wall Street Journal (December 15, 2013) “Trusteed IRAs Can Help Heirs Manage Inheritance”

For more information, see www.jerryreiflawyer.com

Are Your Beneficiary Designations Up-To-Date? Mid-Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

Protecting Your IRA From Your Kids Mid-Michigan

The common IRA is uncommonly powerful, but only if you know how to use it right. In fact, your IRA can actually serve estate planning purposes beyond simple retirement funding. Interested? If yes, then you need to consider a “trusteed IRA.” A good place to start your education is a recent MarketWatch article titled “Trusteed IRAs Can Help Heirs Manage Inheritance.” Basically, IRAs are fairly tidy little retirement accounts because they can be passed on to your heirs, thereby passing on some potentially nice tax advantages and a growing account outside the probate process. When inherited, IRAs still have to comply with a host of tax rules, and an heir can either take a lump sum upfront or figure out their own Required Minimum Distribution (RMD) pattern. On the other hand, a trusteed IRA has that “trustee” – the same role that drives the engine of a full trust agreement – to watch over matters and guide the IRA from retirement account to a guided wealth transfer tool. The trusteed IRA is an interesting option for a healthy middle slice of Americans planning their estates. Case in point, U.S. Bank describes the tool as best suited for accounts worth at least $2 million. Whether or not it is right for you is another question. What is it you have to leave in terms of IRAs? Have you considered how and why you want to leave it to loved ones, even those who may not be as financially mature as you would like? How will you protect heirs from their own bad choices? Fortunately, there are many ways to accomplish your goals. If a trusteed IRA is not the ticket for you, then there are other alternatives to evaluate, like the stand-alone IRA trust.

Reference: The Wall Street Journal (December 15, 2013) “Trusteed IRAs Can Help Heirs Manage Inheritance”

For more information, see www.jerryreiflawyer.com

Thinking Beyond Your Last Will Saginaw, MI

So, you prepared your Last Will and Testament. However, that does not mean your Will is the final word on the distribution of all of your assets. For instance, your IRA likely will be governed by that common beneficiary form you may have completed without thinking through the consequences. Warning: do not designate your “estate” as the beneficiary of your IRA. This severely limits the distribution (and taxation) options available to your heirs. This matter was explored in a recent article in The Slott Report titled “IRAs and Wills Don’t Mix.” While your “estate” can be the beneficiary of your IRA and your Will thereafter determines the distribution of the retirement funds, this might not be best idea tax-wise. IRAs are very specific and peculiar assets with very specific inheritance rules. If your “estate” is the beneficiary of your IRA, then very “unfavorable” withdrawal rules apply. Instead of the IRA being withdrawn over the life expectancy of the beneficiary (typically younger than the plan owner), the funds must be withdrawn within five years or perhaps over your remaining life expectancy. Yes, this can get rather complicated. Make sure you consult with competent legal counsel when coordinating the distributions from your Last Will and from your IRA.

Reference: The Slott Report (July 29, 2013) “IRAs and Wills Don’t Mix”

For more information, see www.jerryreiflawyer.com

 

Investment Properties in Your IRA Saginaw, MI

IRAs are a very specific kind of asset. In fact, most taxpayers do not know that IRAs can be used to own other types of assets at some great tax advantages. For those looking to leverage their IRAs just a bit more and maybe transfer the ownership of some investment assets with greater ease, it is worth your while to consider your options to own investment properties inside of your IRA. A recent Bloomberg article is worth reading as it asks the question “Can You Use Your IRA to Buy Investment Property?” In short, yes. However, there are certain conditions that render it an unavailable option. For starters, you need a self-directed IRA. Second, the property must be acquired directly by the IRA itself. In other words, there would need to have been enough funds in the IRA to begin with to purchase the investment property. Even if your IRA would be eligible to own investment property, you must evaluate how investment property fits into your overall estate plan as far as the IRA is concerned. Obviously, it is rather attractive to grow your IRA on a tax-deferred or tax-free basis. On the other hand, what kind of additional complexities lie in wait upon the eventual sale and perhaps even the transfer to the eventual beneficiary at death? IRAs have a tendency to live on after their owners. Just like any other financial planning decision, it is essential to consider the tax and estate planning consequences downstream.

Reference: Bloomberg (June 10, 2013) “Can You Use Your IRA to Buy Investment Property?”

Fior more information, see www.jerryreiflawyer.com

 

Remember to Take RMD from Inherited IRA Saginaw, MI

Not all assets are inherited in the same way. Take IRAs, for example. When does the IRA of your deceased spouse become “yours,” what should you do with it, and what do you need to know to stay out of tax trouble? The Slott Report recently addressed the consequences of when a surviving spouse inherits the IRA of their deceased spouse and both have reached age 70 ½, the age for Required Minimum Distributions (RMDs). The article titled “Inherited IRA: When do You Own It?” noted that one must be very careful. For starters, the inheriting spouse must be the “designated” beneficiary. Assuming that is the case, what happens when your spouse dies in December and has not withdrawn the required RMD? Must you as the surviving spouse calculate your RMD on both account balances, your spouse’s and your own? RMDs are always tricky because the penalties are steep, with a 50% penalty tax on the amount required but not taken. Bottom line: be sure to get competent legal and tax advice before proceeding if you are the designated beneficiary of an inherited IRA.

Reference: The Slott Report (May 6, 2013) “Inherited IRA: When do You Own It?”

For more information, see www.jerryreiflawyer.com

 

Remember to Take RMD from Inherited IRA Great Lakes Bay Region, MI

Not all assets are inherited in the same way. Take IRAs, for example. When does the IRA of your deceased spouse become “yours,” what should you do with it, and what do you need to know to stay out of tax trouble? The Slott Report recently addressed the consequences of when a surviving spouse inherits the IRA of their deceased spouse and both have reached age 70 ½, the age for Required Minimum Distributions (RMDs). The article titled “Inherited IRA: When do You Own It?” noted that one must be very careful. For starters, the inheriting spouse must be the “designated” beneficiary. Assuming that is the case, what happens when your spouse dies in December and has not withdrawn the required RMD? Must you as the surviving spouse calculate your RMD on both account balances, your spouse’s and your own? RMDs are always tricky because the penalties are steep, with a 50% penalty tax on the amount required but not taken. Bottom line: be sure to get competent legal and tax advice before proceeding if you are the designated beneficiary of an inherited IRA.

Reference: The Slott Report (May 6, 2013) “Inherited IRA: When do You Own It?”

For more information, see www.jerryreiflawyer.com

 

Giving Your IRA For Good Saginaw, MI

Not having enough retirement income from your IRA can be a pretty serious problem. On the other hand, having too much retirement income outside of the IRA can be a bit of a problem, too. Have you heard of the Charitable IRA Rollover? A Charitable IRA Rollover lets you give to your favorite charity while avoiding taxes on IRA distributions. Consequently, this is a very popular win-win strategy for taxpayers who would rather be “voluntary philanthropists” as opposed to “involuntary philanthropists.” A recent Kiplinger article titled “Who Can Transfer IRA Funds to Charity?” explains the ins and outs of Charitable IRA Rollovers. Essentially, not everyone has the option to transfer their IRA distributions directly to charity. For starters you must be older than age 70-1/2, the same age upon which you are required to take Required Minimum Distributions from your IRA. And not by coincidence. Read the original article for a better perspective on the politics behind the planning. Suffice it to say Congress has elected to give you a choice between taxation and charitable giving. The Charitable IRA Rollover gives you this option. Beware! All of this must be done According to Hoyle or you may get caught in a tax trap. Nevertheless, this alternative is well worth considering as part of your overall retirement, estate and charitable planning.

Reference: Kiplinger (April 30, 2013) “Who Can Transfer IRA Funds to Charity?”

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IRAs Targeted in Obama Budget

Three budget plans are winding their way around the capitol, to include President Obama’s. While the details are thin and the pundits are still weighing in, self-employed professionals need to take heed. They are tax targets when it comes to their retirement savings. For retirement savers and those making powerful use of an IRA, here’s at least one tidbit the rumor mill has been circulating well before the budget’s release. If enacted, “wealthy” individuals would be pinched with a $3 million cap on their IRA holdings. Several sources have reported on this, to include Time Magazine in an article titled “Obama’s Budget Would Cap Tax-Advantaged Savings.” Although $3 million may sound like a lot, it may end up affecting more savers who otherwise might not be considered traditional tax targets: self-employed individuals like doctors, lawyers, and entrepreneurs. The self-employed all have unique abilities (and needs) to contribute large amounts to their IRAs. So, who is the intended target of this kind of a cap? One name keeps surfacing: Mitt Romney. Remember that fabled $100+ million IRA, as pointed out by the Boston Globe in an article titled “Obama budget would pinch IRAs of wealthy with $3m cap.” The analyses of the proposal are still being churned out, and there are some important details to be hammered out as well. At present, this cap is no more than a proposal and part of a budget plan none-too-well-liked by either side. Nevertheless, this kind of cap and its prying look at tax-advantaged plans is worth watching.'

Reference: 

Time Magazine (April 10, 2013) “Obama’s Budget Would Cap Tax-Advantaged Savings”

The Boston Globe (April 10, 2013) “Obama budget would pinch IRAs of wealthy with $3m cap”

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IRA Asset Protection Increases

The more you have, the more you have to lose. That’s a cardinal rule of asset protection planning. If you have accumulated savings in an IRA, then you should be aware of the asset protection legally afforded your IRA. As recently reported by the Slott Report, the IRA bankruptcy exemption has just increased. The article is titled “IRA Bankruptcy Exemption Amount Increases.” Background: the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) cleared the way and exempted the first $1 million of IRA funds (including Roth IRAs) in the event of bankruptcy. Fortunately, this amount is subject to cost of living adjustments. Accordingly, the new number as of April 1, 2013, is $1,245,475. This is great news for most American savers, since the average IRA is less than $1 million. Still, it’s also a figure worth knowing for larger IRAs given the important function they serve in many retirement and/or estate plans. Caveat: what is just as important as the exemption are the limitations to the exemption. The safety of the exemption is only afforded in the case of filed bankruptcy, and might be voided in certain instances even then, but other events like divorce may easily trigger a levy on the IRA. The important lesson to remember is that there are existing IRA protections to be understood, but they need to be considered as part of a comprehensive asset protection strategy. Such a strategy will necessarily involve considerations of state law protections, asset titling and insurance coverage. Be sure to engage competent legal counsel, as proper asset protection planning is not a do-it-yourself project.

Reference: The Slott Report (April 9, 2013) “IRA Bankruptcy Exemption Amount Increases”

For more information, see www.jerryreiflawyer.com

 

IRA Asset Protection Increases Saginaw, Michigan

The more you have, the more you have to lose. That’s a cardinal rule of asset protection planning. If you have accumulated savings in an IRA, then you should be aware of the asset protection legally afforded your IRA. As recently reported by the Slott Report, the IRA bankruptcy exemption has just increased. The article is titled “IRA Bankruptcy Exemption Amount Increases.” Background: the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) cleared the way and exempted the first $1 million of IRA funds (including Roth IRAs) in the event of bankruptcy. Fortunately, this amount is subject to cost of living adjustments. Accordingly, the new number as of April 1, 2013, is $1,245,475. This is great news for most American savers, since the average IRA is less than $1 million. Still, it’s also a figure worth knowing for larger IRAs given the important function they serve in many retirement and/or estate plans. Caveat: what is just as important as the exemption are the limitations to the exemption. The safety of the exemption is only afforded in the case of filed bankruptcy, and might be voided in certain instances even then, but other events like divorce may easily trigger a levy on the IRA. The important lesson to remember is that there are existing IRA protections to be understood, but they need to be considered as part of a comprehensive asset protection strategy. Such a strategy will necessarily involve considerations of state law protections, asset titling and insurance coverage. Be sure to engage competent legal counsel, as proper asset protection planning is not a do-it-yourself project.

Reference: The Slott Report (April 9, 2013) “IRA Bankruptcy Exemption Amount Increases

”For more information see www.jerryreiflawyer.com

IRA Asset Protection Increases

The more you have, the more you have to lose. That’s a cardinal rule of asset protection planning. If you have accumulated savings in an IRA, then you should be aware of the asset protection legally afforded your IRA. As recently reported by the Slott Report, the IRA bankruptcy exemption has just increased. The article is titled “IRA Bankruptcy Exemption Amount Increases.” Background: the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) cleared the way and exempted the first $1 million of IRA funds (including Roth IRAs) in the event of bankruptcy. Fortunately, this amount is subject to cost of living adjustments. Accordingly, the new number as of April 1, 2013, is $1,245,475. This is great news for most American savers, since the average IRA is less than $1 million. Still, it’s also a figure worth knowing for larger IRAs given the important function they serve in many retirement and/or estate plans. Caveat: what is just as important as the exemption are the limitations to the exemption. The safety of the exemption is only afforded in the case of filed bankruptcy, and might be voided in certain instances even then, but other events like divorce may easily trigger a levy on the IRA. The important lesson to remember is that there are existing IRA protections to be understood, but they need to be considered as part of a comprehensive asset protection strategy. Such a strategy will necessarily involve considerations of state law protections, asset titling and insurance coverage. Be sure to engage competent legal counsel, as proper asset protection planning is not a do-it-yourself project.

Reference: The Slott Report (April 9, 2013) “IRA Bankruptcy Exemption Amount Increases”

For more information, see www.jerryreiflawyer.com