If you do not take distributions in a timely manner, you may have to pay a 50 percent excise tax on excess IRA additions. You should be aware that defined contribution owners may not have to file a report until retirement.

Those who attain the age of 70 ½ in 2016 are required to report a RMD for the year, but they may wait until April 1, 2017 to do so. Individuals who report RMDs for the first time and are waiting until April to do so, must report twice, because they are required to report a RMD for the current year prior to December 31. This could result in an increase in their tax liability.

Following the first year, IRA owners must report RMDs on an annual basis by the end of the year. The life expectancy of the taxpayer and the taxpayer’s spouse will play a role. The IRS provides resources for making calculations of RMDs. However, the main calculation is to divide the taxpayer’s account balance as of the end of the previous year by an IRS life expectancy factor.

Taxpayers who have neglected to take RMDs are advised to take all of them as quickly as possible so as to avoid the aforementioned excise tax. But taxpayers, such as retirees, who do not need their RMDs, may wish to reinvest those funds into a Roth IRA, which will not require the taxpayer to make withdrawals until after the death of the account holder. Or they may consider reinvesting the funds into a 529 savings plan for their grandchildren.

The elder law attorneys at Hook Law Center assist Virginia families with will preparation, trust & estate administration, guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.

Study co-authors Linda Salisbury and Gergana Nenkov, both marketing professors, wanted to investigate why many individuals do not invest in annuities. Annuities provide a steady stream of income during retirement while individual retirement accounts (IRA) do not.

In one of four related experiments, the researchers asked participants to imagine they were 65 years old and starting retirement. One group was asked if they wanted to put their savings into an IRA, while the second group was asked about an annuity. The participants’ thoughts were analyzed afterwards. The researchers found that only one percent of those examining IRA options had death-related thoughts in comparison to 40 percent of the annuity group participants.

The findings were published online in the Journal of Consumer Psychology. They suggested that in contrast to IRAs, annuities force people to think about their life expectancy in order to calculate their potential payments. As a result, individuals may put off planning for the important life phase of retirement because they are reluctant to decide how long they expect to live.

The researchers suggested financial planners should use simple strategies to help individuals cope with any anxiety that may arise from thinking about death. In addition, viewing estate planning as a tool for helping heirs and family members rather than as a way to prepare for one’s death is likely to make planning for the future seem like less of a daunting prospect.

Pioneers of Elder Law – For over 30 years, Gilfix & La Poll Associates LLP has innovated creative legal solutions to help you manage and plan the future of your estate.
To contact an estate planning lawyer visit http://www.gilfix.com/ or call 800.244.9424.

by Thomas D. Begley, Jr., CELA

Separate Trust

A separate trust designed specifically to control the retirement account is recommended. It is best that the trust not be part of a revocable living trust or any other trust. A “standalone retirement trust” is preferred.

Professional Trustee

When an IRA is paid to a standalone retirement trust or any other trust, it is important to consider a professional trustee. The rules regarding inherited retirement accounts are complex and family member trustees are often unfamiliar with them. This could cause a loss of important tax benefits. Most family members do not understand the rules regarding required minimum distributions (RMDs), conduit trusts or accumulation trusts. This could cause loss of important tax benefits. If the retirement account is $500,000 or more, it usually makes more sense to name a professional trustee. The professional trustee understands the tax rules and has investment expertise.

A family member could be named as trust protector. A trust protector has the right to monitor the performance of the professional trustee and to remove and replace the trustee with another professional trustee, if the trust protector is not satisfied with the performance of the trustee.

Trust Protector

Under an IRA trust a trust protector can be appointed. The trust protector must be unrelated by blood to the trust beneficiary but may have a personal relationship, such as financial advisor, attorney, CPA, or friend. The trust protector can change a conduit trust to an accumulation trust.   This gives the trustee the discretion to accumulate funds.[1]

Conclusion

As Americans rely less on the availability of work-related pensions for their retirement, more of their wealth is found in the tax-deferred retirement accounts that they have funded over the years. As the estate tax exemption grows and becomes less of a concern for most Americans, it becomes increasingly important to understand and plan for minimization of the income taxes that are ultimately payable with respect to these tax-deferred accounts while at the same time maximizing family wealth transfer goals. The standalone IRA Trust is sufficiently flexible that it allows most people to balance their tax and family goals well, offering opportunities for creditor and other beneficiary protections, protection for special needs beneficiaries and spousal planning as well as the possibility of professional management to assist in investing and minimizing income taxes for the beneficiaries.

[1] P.L.R. 200537044; Harvey B. Wallace, II, Retirement Benefits Planning Update, Probate and Property, American Bar Association (May-June 2006); Wealth Preservation Update, Morris Law Group (Mar. 2007), www.law-morris.com.

by Thomas D. Begley, Jr., CELA

Introduction

The United States Supreme Court in a 9-0 unanimous ruling held that an inherited IRA is not protected in bankruptcy under federal law.[1] Heidi Heffron-Clark inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later. The court held that the IRA was not shielded from her creditors, because the funds were not earmarked exclusively for retirement. The Supreme Court indicated that creditor protection does not apply to inherited IRAs for a number of reasons:

• Beneficiaries cannot add money to an inherited IRA like IRA owners can to their accounts;
• Beneficiaries of inherited IRAs must generally begin to make Required Minimum Distributions (RMDs) in the year after they inherit the accounts regardless of how far away they are from retirement;
• Beneficiaries can take total distributions of their inherited accounts at any time and use the funds for any purpose without a penalty. IRA owners must generally wait until age 59-1/2 before they can take penalty-free distributions.

The court held that inherited IRAs do not contain funds dedicated exclusively for use by individuals during retirement. As a result, the favorable bankruptcy protection afforded to retirement funds under the Federal Bankruptcy Code does not apply.

The court did not rule on whether a Spousal Rollover IRA is protected from creditors. Like other IRA owners, if the money is rolled into their own IRA, they may have to pay a 10% early-withdrawal penalty if money is taken before age 59-1/2. If the money is not rolled over into the Spousal Rollover account, then it would appear that the assets will not be protected in bankruptcy.

A way to safeguard IRA and other retirement account assets from creditors is to name a trust as beneficiary of the retirement account.

Trust as Beneficiary

• The best practice is to name a standalone retirement trust as beneficiary for IRAs and other tax-deferred retirement accounts. Naming a trust as beneficiary provides more control. A trust can be drafted to protect the assets from a beneficiary’s creditors.
• If retirement account monies are left directly to heirs, the funds may be squandered by the heirs defeating any benefit of the long-term tax deferral. The trust provides protection from premature withdrawal.
• If the heir is divorced, the retirement account funds may be subject to claims of the non-heir spouse, or if the IRA is in a trust, the non-heir spouse will not be able to attach them.
• Benefit of Beneficiary. If a parent names a child as beneficiary of the parent’s retirement account and subsequently the child dies, that child may name the child’s spouse as beneficiary and the child’s spouse may remarry naming the new spouse as beneficiary. The retirement account would no longer remain in the bloodline. The trust can be designed so that on the death of the child the account passes to other family members and is kept in the bloodline.
• Special Needs. If the beneficiary has special needs, the trust can be drafted to protect the beneficiary’s entitlement to government programs such as SSI, Medicaid or any other means-tested public benefits.
• Finally, if the funds are placed in a trust no guardianship proceeding is needed upon the beneficiary’s incapacity.

[1] Clark v. Rameker, 134 S. Ct. 2242 (2016).

You can withdraw your contributions to Roth IRAs anytime for any reason without being subject to tax or penalty, irrespective of your age. The IRS permits holders of traditional IRAs to label withdrawals as “contributions” until all contributions have been resolved. Upon withdrawal of the contribution part of the account, you can then remove the earnings portion. But if you have not yet reached age 59 ½, the earnings could be taxed as income and you may have to pay a 10 percent penalty.

It could be an expensive error for the retiree to roll over a work-related retirement plan to an IRA if you need the funds before reaching age 59 ½. If you are age 55 or older and you have stopped working, you can withdraw money from your 401(k) or 403(b) account without being subject to the 10 percent penalty that would usually apply to withdrawals from an IRA owned by an individual under age 59 ½.

You can also remove funds from a 457 plan from a government or nonprofit employer without being subject to a ten percent penalty. If you withdraw funds from a work-related retirement plan, they will be taxed as ordinary income. But since early retirees will have less income, their tax bill will be smaller.

If you must withdraw funds from your IRA to pay for living expenses before reaching age 59½, you should determine whether you have any qualifying expenses that can be set against the IRA withdrawals to avoid the ten percent penalty. Such costs could include considerable out-of-pocket medical bills, higher education expenses or health insurance premiums if you are unemployed.

Furthermore, IRA holders under age 59 ½ can make withdrawals from the account without incurring a penalty if the withdrawals are similar in amount and comply with a certain schedule. These are referred to as substantially equal periodic payments (SEPP). Under the SEPP program, once the payments have started, they must continue for five years or until you attain the age of 59 ½, whichever is second. However, if the requisite amounts and timing of the SEPP accounts are not met exactly, all withdrawals may be subject to the ten percent penalty retroactively.

The elder law attorneys at Hook Law Center assist Virginia families with will preparation, trust & estate administration, guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.

You can withdraw your contributions to Roth IRAs anytime for any reason without being subject to tax or penalty, irrespective of your age. The IRS permits holders of traditional IRAs to label withdrawals as “contributions” until all contributions have been resolved. Upon withdrawal of the contribution part of the account, you can then remove the earnings portion. But if you have not yet reached age 59 ½, the earnings could be taxed as income and you may have to pay a 10 percent penalty.

It could be an expensive error for the retiree to roll over a work-related retirement plan to an IRA if you need the funds before reaching age 59 ½. If you are age 55 or older and you have stopped working, you can withdraw money from your 401(k) or 403(b) account without being subject to the 10 percent penalty that would usually apply to withdrawals from an IRA owned by an individual under age 59 ½.

You can also remove funds from a 457 plan from a government or nonprofit employer without being subject to a ten percent penalty. If you withdraw funds from a work-related retirement plan, they will be taxed as ordinary income. But since early retirees will have less income, their tax bill will be smaller.

If you must withdraw funds from your IRA to pay for living expenses before reaching age 59½, you should determine whether you have any qualifying expenses that can be set against the IRA withdrawals to avoid the ten percent penalty. Such costs could include considerable out-of-pocket medical bills, higher education expenses or health insurance premiums if you are unemployed.

Furthermore, IRA holders under age 59 ½ can make withdrawals from the account without incurring a penalty if the withdrawals are similar in amount and comply with a certain schedule. These are referred to as substantially equal periodic payments (SEPP). Under the SEPP program, once the payments have started, they must continue for five years or until you attain the age of 59 ½, whichever is second. However, if the requisite amounts and timing of the SEPP accounts are not met exactly, all withdrawals may be subject to the ten percent penalty retroactively.

The elder law attorneys at Hook Law Center assist Virginia families with will preparation, trust & estate administration, guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.

If you die without a Will or some other form of estate planning, the state in which you reside and the IRS will simply make one for you. Of course, they have no interest in avoiding or reducing estate taxes, minimizing estate administration costs or protecting your family and legacy. The distribution of your assets will just be turned over to the Probate Court to be distributed in accordance to the government’s rule book.

There are Four Ways to Pass Property at Your Death

1. Joint Property: is a type of ownership of property or asset in which you and another co-owner have a right of survivorship, meaning that when you die, your interest in the property will pass to the surviving owner or owners by operation of law, avoiding probate. Examples of joint property ownership are joint bank accounts and jointly owned real estate.

2. Beneficiary Designation: you name a person designated as the recipient of funds or other property under the terms of a contract. For example, you have an IRA, 401k, or a Life Insurance Policy. By contract, the beneficiary you designate will receive your funds at your death, thereby avoiding probate.

3. Trust: if you put your property into a trust, and the trust is drafted and funded properly (funded means that all of your assets that you want to pass are titled in the trust), your property will pass to your beneficiaries at your death according to the terms of the trust, avoiding probate.

4. Probate Court: if you have assets titled in your name at your death and you have not provided a mechanism to pass the assets to your beneficiaries (i.e. the above three ways to pass property at your death), the only mechanism left to pass your assets is the Probate Court.

What is Probate?

Probate refers to the method by which your estate is administered and processed through the legal system after you die. The probate process essentially transfers your estate in a certain manner (for example, your debts and taxes paid before your beneficiaries receive their inheritance). Think of the probate process as the “script” that guides the transfer of your estate according to the rulebook of the state you live in.

The probate process is needlessly time consuming, frustrating and expensive. It is also open to the public, meaning creditors, predators or anyone else will have complete access to all information about your estate. For the vast majority of people, the benefits of a Will or other estate planning tools far outweigh any initial costs.

Get Educated

To learn more, join us for one of our FREE LifeCare Planning Workshops. Our estate planning experts will have upcoming workshops in Ann Arbor, Bloomfield Hills, Brighton, Dearborn, Lansing, Livonia, Novi, and Trenton. We promise that time will fly, you’ll learn a lot, and have a little bit of fun. To sign up for a LifeCare Planning Workshop click here.

The post The “10 Most Gruesome Estate Planning Mistakes” series. Mistake #1: Dying Intestate appeared first on Michigan Estate Planning.

INTRODUCTION

The United States Supreme Court in a 9-0 unanimous ruling held that an inherited IRA is not protected in bankruptcy under federal law.[1] Heidi Heffron-Clark inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later. The court held that the IRA was not shielded from her creditors, because the funds were not earmarked exclusively for retirement. The Supreme Court indicated that creditor protection does not apply to inherited IRAs for a number of reasons:

• Beneficiaries cannot add money to an inherited IRA like IRA owners can to their accounts;
• Beneficiaries of inherited IRAs must generally begin to make Required Minimum Distributions (RMDs) in the year after they inherit the accounts regardless of how far away they are from retirement;
• Beneficiaries can take total distributions of their inherited accounts at any time and use the funds for any purpose without a penalty. IRA owners must generally wait until age 59-1/2 before they can take penalty-free distributions.

The court held that inherited IRAs do not contain funds dedicated exclusively for use by individuals during retirement. As a result, the favorable bankruptcy protection afforded to retirement funds under the Federal Bankruptcy Code does not apply.

The court did not rule on whether a Spousal Rollover IRA is protected from creditors. Like other IRA owners, if the money is rolled into their own IRA, they may have to pay a 10% early-withdrawal penalty if money is taken before age 59-1/2. If the money is not rolled over into the Spousal Rollover account, then it would appear that the assets will not be protected in bankruptcy.

A way to safeguard IRA assets from creditors is to name a trust as beneficiary of the IRA.

TRUST AS BENEFICIARY

The best practice is to name a standalone retirement trust as beneficiary for IRAs and other tax-deferred conduit accounts. Naming a beneficiary outright has several disadvantages:

• The money could be available to the beneficiary’s creditors, spouse, or ex-spouse.
• A young adult or even older beneficiary may be tempted to take out larger distributions or even cash out the entire account.
• If the beneficiary is a spouse, the spouse would be able to name new beneficiaries.
• If the beneficiary has special needs, the IRA could cause a loss of government benefits.

• If the beneficiary becomes incapacitated, a guardian would have to be appointed for the beneficiary.
• If the beneficiary is a minor, distributions will need to be paid to a guardian; if no guardian has been appointed, one will have to be appointed by a court.

IRA Trust Advantages. If IRA monies are left directly to heirs, the funds may be squandered by the heirs, defeating any benefit of long-term tax deferral benefits. In addition, if the heir is divorced, the IRA funds may be subject to claims of the non-heir spouse. Depending on state law, the IRA funds may also be vulnerable to claims of creditors.

Naming a trust as beneficiary provides more control. A trust can be drafted to protect the assets from a beneficiary’s creditors and even from the beneficiary’s own poor choices. In the event the beneficiary has special needs, the trust can be drafted to protect the beneficiary’s entitlement to government programs. Finally, no guardianship proceeding is needed upon the beneficiary’s incapacity. A separate trust designed specifically to control the IRA is recommended. It is best that the trust not be part of a revocable living trust or any other trust. A “standalone retirement trust” is preferred.

Professional Trustee. When an IRA is paid to a standalone retirement trust or any other trust, it is important to consider a professional trustee. The rules regarding inherited IRAs are complex and family member trustees are often unfamiliar with them. This could cause a loss of important tax benefits.

Income Tax Rates. To the extent that distributions are retained by the trust, the separate rate schedule for trusts and estates is applied.[2] These rates are significantly higher than the tax rates for individuals.

If the IRA distribution is distributed by the trust to trust beneficiaries, the trust receives an income tax deduction. To the extent that the trust beneficiary, who is a U.S. citizen or resident, has the unlimited right to take retirement benefits out of the trust, the trust is a “grantor trust” and distributions are taxed at the beneficiary’s rate rather than the trust rate.[3]

Trust as Designated Beneficiary. A trust may qualify as a designated beneficiary. This is important in order to preserve the ability to stretch the required payments from the IRA out over the lifetime of the beneficiary. In order for a trust to qualify, there is a four-pronged test:

• The trust must be valid under state law or would be but for the fact that there is no corpus.[4]
• The trust is irrevocable or will, by its terms, become irrevocable upon death of the IRA owner.[5]
• The beneficiaries of the trust are also beneficiaries of the IRA and they are identifiable.[6]
• The trust documentation must be provided to the Plan Administrator.[7]

The trust documentation includes the following:

• Required Minimum Distribution (RMD) Prior to Death. If the IRA owner designates the trust as the beneficiary of the entire benefit and the IRA owner’s spouse is the sole beneficiary of the trust, the spouse can be treated as the sole Designated Beneficiary if the employee either (a) provides the plan administrator with a copy of the trust instrument and agrees that if the trust instrument is amended at any time the IRA owner will, within a reasonable period of time, provide the plan administrator with a copy of each such amendment, or (b) provide the plan administrator with a list of all beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions of their entitlements sufficient to establish that the spouse is the sole beneficiary) and certifies that to the best of the IRA owner’s knowledge, the list is correct and complete and agrees to furnish the administrator with any amendments within a reasonable period of time.
• Required RMD After Death. The IRA owner must either (a) provide the plan administrator with a final list of all beneficiaries of the trust (include contingent and remaindermen beneficiaries with a description of the conditions of their entitlement) as of September 30 of the calendar year following the calendar year of the IRA owner’s death and certify that to the best of the trustee’s knowledge, the list is correct and complete and agree to provide a copy of the trust instrument on demand, or (b) provide the plan administrator with a copy of the actual trust document.

If an IRA owner has designated a trust for the sole benefit of his/her spouse and the terms of the trust are such that the spouse is considered the IRA owner’s sole beneficiary for minimum distribution purposes, the minimum distributions to the IRA owner are determined based on the IRA owner’s and spouse’s actual joint life expectancy.

Trust Beneficiaries as Designated Beneficiaries. If a trust is the beneficiary of an IRA, separate account treatment for benefits is prohibited even if the trust terminates immediately upon the participant’s death and is divided into separate shares or sub trusts.[8] If separate account treatment is an important goal, the separate accounts must be created in the beneficiary designation form and the separate accounts must be left directly to the different beneficiaries. If the trust is designated as beneficiary, the required distributions will be based on the life expectancy of the oldest beneficiary of the trust.

In order for benefits payable to a trust to be treated as separate accounts, there are two requirements:

1. There must be actual separate trusts that are created at or before Participant’s death (benefits payable to a single trust cannot be treated as “separate accounts” under any circumstance), and
2. Benefits must be divided, at the Plan level, into separate accounts payable to those separate trusts by the December 31 deadline. This means that the division of the IRA into separate accounts must also be made in the beneficiary designation form rather than simply naming a trust that is divided into sub-trusts.[9]

An IRA trust can be drafted as either a conduit trust or an accumulation trust.

Conduit Trust. Under a conduit trust the trustee must immediately distribute any IRA or plan benefits received by the trust (whether as a required minimum distribution or otherwise) to the trust beneficiaries. RMD payments are determined by the single life expectancy of the trust’s conduit beneficiary, but trust distributions may be sprayed to other beneficiaries younger than the conduit beneficiary as well.[10]

The trust distributions will be measured by the life expectancy of the initial beneficiary, so if that beneficiary dies any older beneficiaries will still receive the payout based on the life of the initial beneficiary. Following the conduit beneficiary’s death, the trustee may accumulate plan benefits.

Pros: All income is distributed to beneficiary and tax paid at beneficiary’s rates.

Cons: MRD subject to beneficiary’s creditors.

Accumulation Trust. A trust named as a beneficiary of an IRA can be designed as an accumulation trust. Under an accumulation trust the trustee can retain IRA distributions rather than pay them out as received. The problem is that where an accumulation trust is used, the shortest life expectancy of all of the possible beneficiaries is used to determine RMD. An accumulation trust should be used when the beneficiary is a special needs trust.

Pros: IRA protected from beneficiary’s creditors.

Cons: May pay tax at trust’s rate.

IRA Trust. Under an IRA trust a trust protector can be appointed. The trust protector must be unrelated by blood to the trust beneficiary but may have a personal relationship, such as financial advisor, attorney, CPA, or friend. The trust protector can change a conduit trust to an accumulation trust by avoiding the provision that requires immediate payout of the IRA distributions to the primary trust beneficiary. This gives the trustee the discretion to accumulate funds.[11]

Spousal Planning. Planning for retirement assets for a surviving spouse is greatly assisted by portability.[12] Under this provision, the first spouse to die can leave his or her unused federal estate tax exemption to the surviving spouse. This is known as the “deceased spousal unused exclusion amount” or “DSUEA.” There are three advantages to portability:

• Estate Tax Savings. There can be considerable estate tax savings in situations where the poorer spouse dies first.
• Outright Gifts. The new law permits outright gifts to a surviving spouse while avoiding payment of taxes without utilization of a credit shelter trust.
• Step Up. Assets, other than retirement plans, included in the estate of the first spouse to die and then again in the estate of the second spouse to die receive a step up in basis on each death.

While credit shelter trusts offer a number of advantages for non-retirement assets, it is usually a disaster for retirement assets. This is for several reasons:

• Shrinkage. The amount of assets in the retirement plan of the first spouse to die that are left to a credit shelter trust may have declined significantly between the date of death of the first spouse and the surviving spouse. This is because of required minimum distributions and the tax on those distributions. The tax will be larger, because the distributions made to the trust will be required to be larger than if the retirement plan had been rolled over into a spousal IRA.
• Conduit Trust. If the trust was a conduit trust, then all unspent after-tax proceeds will be included in the surviving spouse’s taxable estate, which contravenes the purpose of the credit shelter trust. Prior to portability, there was a tradeoff between the positive income tax outcome of a spousal rollover and the negative estate tax outcome. Portability solves that problem for most married couples.

Begley Law Group, P.C. has served the Southern New Jersey and Philadelphia area as a life-planning firm for over 85 years. Our attorneys have expertise in the areas of personal injury settlement consulting, special needs planning, Medicaid planning, estate planning, estate & trust administration, guardianship, and estate & trust litigation. Contact us today to begin the conversation.

[1] Clark v. Rameker, 573 U.S. _____ (2014).

[2] I.R.C. § 1(e).

[3] I.R.C. § 678; I.R.C. § 672(f).

[4] Treas. Reg. § 1.401(a)(9)-4, A-5(b)(2).

[5] Treas. Reg. § 1.401(a)(9)-4, A-5(b)(2).

[6] Treas. Reg. § 1.401(a)(9)-4, A-5(b)(3).

[7] Treas. Reg. § 1.401(a)(9)-4, A-5(b)(4).

[8] WPLR 2003-17041, 2003-17043 and 2003-17044.

[9] P.L.R. 2004-32027 and 2004-32029.

[10] P.L.R. 200227059.

[11] P.L.R. 200537044; Harvey B. Wallace, II, Retirement Benefits Planning Update, Probate and Property, American Bar Association (May-June 2006); Wealth Preservation Update, Morris Law Group (Mar. 2007), www.law-morris.com.

[12] I.R.C. § 2001(b)(1).

Luckily, surviving spouses have some leeway. It’s still tricky to transfer from spouse to spouse. But the rules for spouses are different than non-spouses.

If you have more than one child, it may seem logical to name the estate as beneficiary. This is not always a good idea. In this case, your children will be required to take all of the money out of the IRA by the end of the fifth year after your death – missing the opportunity to accumulate interest and enjoy the tax sheltering benefit.

Owners of traditional IRAs must start taking required minimum distribution (RMD) when they turn 70 ½. Non-spouse beneficiaries must start taking RMDs upon inheriting. This means you can’t leave the entire amount in the account, allowing it to draw interest. The penalty for not taking RMDs on time is steep. A full 50% penalty on the amount that should have been withdrawn for the year!

Non-Spouse IRA Planning

Unfortunately, non-spouse beneficiaries can’t roll an inherited IRA into their own IRA. A separate account Inherited IRA must be set up and titled so that it includes the decedent’s name and the name of the person inheriting an indication of the purpose of the IRA. For example, it might say, “Rhonda Smith (deceased January 7, 2015) IRA for the benefit of Roy Smith.” If the account is split among beneficiaries, the original IRA must be split into separate IRAs and each one must be titled in the same manner.

To avoid this pitfall, name your children as beneficiaries of the IRA, and not the estate. By doing so, they will have a lot more flexibility. They can take annual distributions based on their own life expectancy which allows them to leave the money in the account and defer taxes.

Roth (not traditional) IRAs can usually be withdrawn tax-free. But, they’ll be prohibited from depositing them into their own IRAs and they’ll have to pay taxes on the whole amount.

Name Your Revocable Living Trust Beneficiary of your IRA?

The question of whether to name your trust as a beneficiary of your IRA money commonly comes up.  Unsophisticated estate planning lawyers or financial advisors will recommend you not to name your revocable living trust as a beneficiary.  However, if your trust is drafted properly, with the right language inside the trust, then naming your living trust is absolutely the best choice.

Legal and Financial Planning for Howell Clients

These issues above are just some of the traps you can fall in when inheriting an IRA. When it comes to transferring IRAs, it is critical to seek the advice of a qualified, experienced estate attorney in Livingston County. They can help you decide whether or not to withdraw the funds, set up a standalone retirement plan trust or set up an Inherited IRA.

If you have questions about how to inherit an IRA or if you want to make sure the beneficiaries on your IRA are set up correctly, give our Howell estate planning law firm a call at (888) 390-4360 for assistance.

The post Common Pitfalls of Non-Spouse Inheriting IRAs | Howell Estate Attorney appeared first on Michigan Estate Planning.

• Having a career backup plan

According to time.com, unemployed baby boomers in the 55 to 64 age category tend to stay unemployed for an average of 11 months. If you are working at a full-time career, take on some extra side jobs. Investing in dividend-paying mutual funds or exchange-traded funds is one fairly conservative ways to start building up passive income in case you lose your primary job. Many pre-retirees save in a retirement account such as 401(k) or Roth IRA as well as a regular investment account.

• Downsizing before you have to

Instead of waiting to downsize because you lost your job and can’t pay the mortgage, consider scaling back ahead of time. If you have owned your home for 10 or more years, you could have enough equity. After selling your home, take the cash and make an all-cash purchase on a less expensive home. Other hidden savings include lower property taxes, home owner’s insurance, utility costs and maintenance. If you own your home outright, it’s more likely you’ll be able to retire early.

• Shift money in your retirement portfolio

Most people review their retirement plans at least once a year. As you grow older, it’s wise to put more money in conservative investments and less money in risky individual stocks. The time.com article recommends dialing down equities or stocks to half or less. Once you retire, you don’t want to take as many risks with the investments inside your retirement plans.

• Consider a Roth conversion

If you make too much money to contribute to a Roth IRA, you can still get money into a Roth by converting money from a traditional IRA into a Roth. You will have to pay income taxes the year you convert from a traditional to a Roth. One trick is to convert small amounts every year leading up to your retirement so you don’t have to foot the entire tax bill all at once. A Roth is a valuable asset left to your children and grandchildren as part of an estate plan. However, it’s wise to have an elder law attorney review your retirement accounts. Using the most tax efficient methods means you won’t have to worry about your loved ones.

For some people, it makes more financial sense to keep working a few years beyond the early retirement age of 62. Whether you decide to work until you are 64 or 70, rely on the expertise of an elder law attorney to guide your retirement plans.

Elder law attorney Christopher J. Berry and the Elder Care Team specializes in retirement and long-term care planning. We can help you set up a retirement plan trust to maximize tax deferment for your beneficiaries and protect you while you are living. For more information on the best retirement plans for retiring early, please contact us.

The post Retirement Plans: What Steps Will Help You Retire Early? appeared first on The Elder Care Firm.

Their division usually depends on the nature and the value of the asset. Here is a list of a few common retirement asset types.

·         Saving Plans

These are plans such as the ESOPs, 401k plans, Thrift saving plans, IRAs etc.

·         Defined Contribution Plans

A define contribution plan is different to a savings plan. The value of this plan is determined with respect to the contributions that are made to this plan over the course. The money invested in such plans can be invested and can grow.

·         Defined Benefit Plans

A defined benefit plan is one plan that compensates the spouse once they have retired to the date when their life time ends. This is usually done through a monthly payment every month for the rest of their lives.

Dividing Saving Plans

Saving plans are considered cash plan and hence can be divided as part of a divorce between two spouses. They can be liquidated, but before the liquidation happens, it is important that the accounts custodian is given a certified copy that has the court order clearly written down on it. The IRA proceeds can either be directly paid to the spouses or they may be used to make two separate IRA accounts for both the spouses.  This could however result in a loss of the 30% for taxes as a penalty for early withdrawal.

Dividing Defined Contribution Plans

Before defined contribution plans can be divided because of a divorce between two spouses, they’ll need to be valued. Their valuation is carried out by multiplying the vesting percentage to the balance of the account. Generally when such plans are divided each spouse gets one half of the vested current value of the plan.

Diving Defined Benefit Plans

The workings of a defined benefits plan are different to the above mentioned retirement plans. In such plans the benefits of the participants will not be liquidated before the retirement age of the owner spouse is reached. Once the age is reached the participant spouse will receive her retirement plan in her name with respect to the marital interest they have in the participant’s plan. This plane given to the spouse will also have the same terms and conditions as the original retirement plan has.

Gerald A. Maggio is a trained Orange County divorce mediator who has amicably resolved cases many cases out of court, as well as an experienced divorce and family law attorney. Mr. Maggio founded California Divorce Mediators in 2012 with the belief that although “not every marriage can be saved, every family can” and a mission to save families from the financial and emotional distress associated with traditional divorce litigation. California Divorce Mediators is located in Irvine, California, and serves the Orange County area and other counties in California offering divorce mediation, child custody mediation and mediation of other family law matters.

Having a Roth account can be especially beneficial for people who anticipate being in a higher tax bracket when they start making withdrawals than when they deposited the money into the account. In contrast, converting to a Roth may not be the right decision for people who expect to have a lower tax rate in the future.

Those who already have a traditional IRA can convert the funds into a Roth. In the year of the conversion, the individual must pay taxes on the full amount placed in the Roth. If necessary, the conversion can be done in smaller steps over the course of several years. One effective strategy is to convert just enough to reach the top of one’s current tax bracket.

Another advantage of Roth accounts is that withdrawals of earnings can be made with no taxes or penalties, as long as the person is over the age of 59½ and has had at least one Roth open for at least five years. Contributions can be withdrawn without taxes or penalties at any time.

In contrast to traditional IRAs, there is no minimum distribution requirement for Roth IRAs upon reaching the age of 70½. Account holders who do not need to withdraw from their Roth IRA can allow the money to grow in tax shelter until their death. Once the account passes to a non-spouse heir, that person is required to take minimum distributions. The taxes paid on a Roth conversion are not included in a person’s taxable estate.

The elder law attorneys at Hook Law Center assist Virginia families with will preparation, trust & estate administration, guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.

by Thomas D. Begley, Jr., CELA

Medical Deduction – Client

The IRS permits an income tax deduction for medical expenses. Medical expenses include qualified long-term care services. A taxpayer can claim an itemized deduction for unreimbursed medical expenses to the extent such expenses exceed 10% of adjusted gross income. For individual age 65 and older, the threshold is 7.5% until December 31, 2016. If an individual is institutionalized, an issue may arise as to whether room and board is deductible for medical expenses. The question frequently arises if an individual has resided in an assisted living facility. The answer is that such expenses are deductible if a principle reason for the individual’s institutionalization is to receive medical care. The costs of meals and lodging are necessary incidents to medical care and are deductible.

Asset Transfer

• Carryover Basis. In determining which assets to transfer and which assets to retain, consideration must be given to the fact that the donee of a gift receives a “carryover basis.” This means that the cost basis of the donee is the same as the cost basis of the donor. Therefore, when the transferred assets are sold, the donee must pay capital gains tax. The best strategy is, usually, to transfer unappreciated assets to the donee, and reserve appreciated assets for the donor. That way, any gain on the sale of the appreciated assets can be offset by deducting the cost of the nursing home from income tax. An alternative strategy is to transfer the appreciated assets to a trust designed to preserve the step-up in basis on death.

• Step-Up in Basis. Assets forming a part of the estate of a decedent are included in that person’s estate for federal estate tax purposes. The beneficiary of the estate receives a “step-up” in basis with respect to those assets so that the beneficiary’s new basis is the fair market value of the assets as of the date of the death of the decedent.

Retirement Plan

If a person has a retirement plan, such as an IRA or savings plan, the withdrawal of funds from that account is a taxable event. If some period of private payment for long-term care services is required, it makes sense to use the money in the retirement plan for this purpose. The medical deduction for the qualified long-term services can be used to offset the taxable income resulting from the withdrawal from the retirement plan.

Gain on Sale of Home

There is an exclusion from gross income for the sale of a principal residence if the property was owned and used by the taxpayer as the taxpayer’s principal residence for two of the five years preceding the date of the sale. The amount of the gain excluded is $250,000 for a taxpayer filing individually and $500,000 for taxpayers filing jointly. In the case of married couples, the ownership requirement can be met by either spouse, but both spouses must meet the use requirement, and neither spouse can have claimed the exclusion during the two-year period ending on the date of the sale.

by Thomas D. Begley, Jr., CELA

1. Grandchildren

Many grandparents would like to leave something to their grandchildren. Frequently, the grandparents have not thought of this idea, but are enthusiastic when it is presented to them. One way to remember the grandchildren in a Will is to leave a flat sum of money, i.e., $10,000 per grandchild, another is to leave the grandchildren a separate share. For example, grandparents with three children may want to divide their estate into four shares, one for each of the children and one to be divided equally among the grandchildren. Some grandparents want to establish trusts for their grandchildren and limit distributions for education. 529 Plans are also a popular idea for many grandparents.

2. Gifts/Loans to Children

Frequently, parents have made gifts or loans to one or more children, but not to all children. The Estate Planning attorney should ask whether the parents intended the gifts to be an advancement against the child’s share of the estate and whether they intend the loans to be repaid from the child’s share of the estate. Frequently, these loans are not documented and often children make no payments or default rather quickly.

3. Blended Families

A fairly high percentage of the population is engaged in a second or subsequent marriage. They have children by a previous marriage or marriages. Do the parents want to treat their children and stepchildren equally? If not, do they want to provide for their current spouse, and upon the death of the current spouse direct their estate to their own children? Do they want a portion of the estate to go outright to the children immediately upon death? Do they want their current spouse to have a life estate in the real estate in which the couple resides at the time of the first death? If so, who will pay the taxes, utilities and upkeep? Would the life estate end if the surviving spouse cohabits or remarries? Has a Prenuptial Agreement been signed? Should a Contract to Make a Will be considered?

4. Disability

Is there a family member with a disability? If so, is that family member receiving or likely to receive in the future any means-tested public benefits such as SSI or Medicaid? If so, a Special Needs Trust should be prepared.

5. Beneficiary Designations

The beneficiary designations on life insurance policies, annuities and retirement plans must be coordinated with the client’s estate plan. Clients should be advised to retitle any POD or TOD assets. IRA beneficiaries should be designated with a view toward rolling over and/or stretching out IRA distributions.

The old idea of retirement planning being a “three-legged stool” still holds basically true, but it’s also a little more complicated than it used to be.

Individual retirement accounts, or IRAs, have been a valuable tool for retirement and estate planning for several decades. It has been a great way for people to save money for retirement with little or no taxes paid and grow with interest to provide a nice nest egg to live on later in life or to pass on to beneficiaries.
This comes about following a landmark Supreme Court case that did not get many headlines nationally but has wide ramifications.

No Asset Protection for Inherited IRAs

The Supremes ruled in the 2014 case, Clark v. Rameker, that an inherited IRA is not a “protected account” under federal bankruptcy laws. What this means is if you have an IRA that you inherited from a loved one who passed away and you file for bankruptcy protection, that account is not shielded, which means the account can be used to pay creditors and can be subject to liquidation by a bankruptcy court.
Think about that for a second, and take it to a different angle. Let’s say you leave an IRA to your child who is a bit of a spender. He or she is the type who would ask for money out of the IRA ad use it to buy a car, lots and lots of shoes (there was a big sale!) and to pay back taxes or cover a gambling debt. Was that how you expected the money to be used? Surely the plan was to give the IRA to be used for retirement income and not for paying back creditors or for frivolous spending.

Stand Alone Retirement Plan Trust

But if an inherited IRA is now not protected, what can you do? There are ways to protect that IRA, and they include creating a “see through” trust account that meets certain IRS criteria. In a trust, the inherited IRA not only can be protected from bankruptcy or other creditors, but it also can be protected from those spenders you have as children.
If you have an IRA account that you intend to pass down to the next generation, it is a good idea to visit with an estate-planning attorney who knows the ramifications of the Clark case and how it applies to federal regulations as well as Michigan state law regarding such accounts.  One of the best ways to pass IRA’s down to the next generation are with Stand Alone Retirement Plane Trusts.

This is your hard-earned money, and you have a right, a duty, and a responsibility to protect it from various threats so it can be used to its maximum potential. Your retirement account is a part of your legacy, and your legacy should be maintained by the next generation, or you should take control of it in your own way. Either way, proper estate planning now will keep your legacy intact for years to come, regardless of your children, grandchildren or their creditors.

The post A Threat to Your IRA Thanks to the Supreme Court appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

One method is to donate appreciated securities. If you own stock that has appreciated over time, you may owe a long-term capital gains tax if you were to sell it, so it is not actually worth the full amount to you. However, if you donate the stock to charity instead, the charity will receive the full value when they sell it, and you can deduct the full value when you file your taxes. If you wish to use this technique with multiple charities, you may wish to set up a donor-advised fund.

With regard to your estate plan, you can save on taxes by using money in your individual retirement account (IRA) for any charitable bequests you wish to make. IRA withdrawals to human heirs are usually taxable, but charities can receive the full value without paying income tax. Then you can leave other assets to your heirs without them owing income tax. If you leave appreciated assets to your heirs, they can avoid paying tax on gains made during your lifetime.

Learn more about our legal services at www.littmankrooks.com or www.elderlawnewyork.com.

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One method is to donate appreciated securities. If you own stock that has appreciated over time, you may owe a long-term capital gains tax if you were to sell it, so it is not actually worth the full amount to you. However, if you donate the stock to charity instead, the charity will receive the full value when they sell it, and you can deduct the full value when you file your taxes. If you wish to use this technique with multiple charities, you may wish to set up a donor-advised fund.

With regard to your estate plan, you can save on taxes by using money in your individual retirement account (IRA) for any charitable bequests you wish to make. IRA withdrawals to human heirs are usually taxable, but charities can receive the full value without paying income tax. Then you can leave other assets to your heirs without them owing income tax. If you leave appreciated assets to your heirs, they can avoid paying tax on gains made during your lifetime.

Learn more about our legal services at www.littmankrooks.com or www.elderlawnewyork.com.

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If an employer does not offer a 401(k), there are other investment options, including the traditional IRA and the Roth IRA

Today, when it comes to providing a retirement plan for their employees, businesses large and small, have opted for a defined-contribution plan with choices that include a 401(k), IRAs and Roth IRAs; this, versus a ‘defined benefit,’ program, or more commonly referred to as a pension plan.

According to an interview on CNBC with the CEO of a major investment firm, the era of pension plans represented an almost “paternalistic” approach of making sure their workers would have a financially secure retirement.

But with the introduction of the 401(k) retirement plans back in 1980, employees have been able to squirrel away pre-tax dollars, as well as any employer contributions, in a number of funds through the sponsoring investment firm of the employer’s choosing.

Consequently, this retirement alternative has allowed employers to avoid the risks long associated with years of funding the traditional pension plan, a risk derived from the fact that Americans are simply living longer.

As investors scramble to improve their portfolios since the 2008 economic debacle, their investment decisions are impacted by their increased longevity. Not only are 6,000 of us turning 65 every day, but 13 percent are over the age of 65. What’s more, the average life expectancy for men is 78, and 80 for women.

Does the ‘law’ require employers to provide workers with a 401(k) ?

Employers are not legally bound to provide a sponsored 401(k). For workers fortunate enough to have this choice, they’ve come to realize that their plan was never meant to be the single source of income in their retirement years. Indeed, this self-funded retirement program is meant to complement the retiree’s Social Security and personal savings.

Just how much can they put into their plan? For 2015 an investor’s contribution limit is $18,000; that’s up from $17,500 in 2013 and 2014.

What are the ‘risks’ for employees?

Because the 401(k) is a voluntary program offered by employers, business owners have also managed to detach themselves from being accountable when it comes to fund management, or even educating employees about the basics of investing.

Alternatives to the 401(k).

If an employer does not offer this tax-deferred retirement option, the IRS says it’s okay to put money aside in other investment vehicles, including the traditional IRA and the Roth IRA.

IRA:  Workers can turn to the individual retirement account (IRA) for tax-deferred investing; again, like the 401(k), the investments are not taxed until they are withdrawn, but contribution limits are more restrictive than with the 401(k): $5,500 with a $1000 ‘catch up’ if you’re over 50.

Like the 401(k), investors are allowed to take an upfront deduction, thereby reducing the amount of their wages that are subject to taxation.

Roth IRA:  No upfront-deductions are allowed like they are with the 401(k) and IRA, but the distributions are tax-free. Also, although there are certain income restrictions before the plan can be allowed by the IRS, the contribution amounts are the same as the IRA.

Both the IRA and Roth IRA require investors to establish their plans through an investment firm, like a Vanguard or Fidelity, for example, who act as the legal custodian of the funds.

American Society of Pension Professionals and Actuaries: “The system is not perfect.”

“Nothing in the history of this country has promoted more savings by average Americans than the 401(k) plan, with total assets in excess of $4 trillion (plus over $5 trillion in IRAs, much of which is from 401(k) rollovers). Three-quarters of American families became investors first through their workplace retirement plan. It is hard to imagine where we would be without our nation’s private retirement system. The system is not perfect…” Forbes 4/24/2013

Contact us to discuss your estate planning needs, including your options for long-term care, power-of-attorney as well as guidance with veteran’s benefits.

The post The law does not require employers to provide workers with a 401(k), a defined-contribution retirement plan. appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

MyRA accounts are free to open and are sponsored by the government. Account holders can contribute directly from their paycheck. To qualify to open an account, an individual’s income must be less than $129,000, while a married couple’s household income must be less than $191,000.

The accounts will be especially beneficial for people who work part-time and those who work at small businesses that do not offer retirement benefits. However, anyone can sign up for a myRA, even those who do have an employer-sponsored retirement plan.

MyRAs are basically the same as Roth IRA accounts, in which after-tax dollars are invested so that earnings can be withdrawn without paying taxes in retirement. MyRAs will be invested in government bonds only, which means that they currently have lower returns than a typical IRA. However, there are no fees, and since the accounts are backed by the government, it is impossible to lose the original investment.

Because myRAs are intended to be a starter retirement savings account, there are some limitations on how they can be used. Account holders can contribute up to $5,500 per year. If the account balance exceeds $15,000, or if 30 years have passed, the account must be rolled over into a Roth IRA in the private sector.

The elder law attorneys at Hook Law Center assist Virginia families with will preparation, trust & estate administration, guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.

Make a Plan and Stick To It

Meet with an attorney and create a retirement strategy for saving your earnings in IRA’s and 401(k)’s. Be strict with yourself. Do not break your plan even for one week. The earlier you start, the better off you will be when it is time for you to retire. The United States Department of Labor estimates that you will need around 70 percent of your pre-retirement earnings once you retire to maintain your current lifestyle.

Contribute to Employer 401(k) Plans

These plans are perfect for retirement. They don’t get taxed until they are cashed, so they grow in an account for years. Also, depending on your plan your employer may have to match your contributions to your account, so that you are putting back double. Despite these great plans in 2012 over 30 percent of private industry workers with access to 401(k) plans did not contribute to them. Do not let these opportunities pass you by.

Meet with A Professionaland Create an Investment Plan

If you invest young and work with a professional to manage and grow your investments, by the time you retire you should have a nice chunk of change. Obviously, you need to find the right professional for your needs, and formulate the best possible plan for the long-term with them. It is a good idea to put your money to work for you, so that you don’t have to constantly be worrying about saving all the time.

Contact us for more information on retirement plans.

The post Make Your Retirement Plans Now Before It is Too Late appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

Worried about setting up your retirement future? Unsure if after you reach retirement that you won’t have enough money to live comfortably? Then continue reading.

In this post, we’ll provide you with 10 tips to prepare for retirement.

1. Save, save, save! If you have already started saving, then don’t stop! Your savings is your first line of defense against a sinking retirement ship. The more money you pack away, the more secure your future is. Consider establishing a concrete plan to squirrel away extra money as soon as possible.

2. Contribute to your 401(k). If your current job offers a 401(k), then it behooves you to add to it. A 401(k) allows you to contribute pre-tax money, meaning it is untouched; a significant advantage because it’s dollar for dollar.

3. Set a retirement goal. Much like our first tip, planning ahead is key. Many retirement specialists agree that you will need around 70-90% of your pre-retirement income as a nest egg once you hit the age to retire. Otherwise, you will not be living at your current standard, and will have to make many sacrifices that you will likely not want to.

4. Match your employer. It really is that simple. If your employer matches your 401(k), do not hesitate to take full advantage of the match. Look at it as free money, an incentive for you to contribute, and sign on immediately. Unsure if they do? Ask!

5. Consider an IRA. Much like a 401(k), an IRA brings with it huge tax breaks, but it’s important to pay attention to which plan is which. A traditional IRA gives a tax-deferred growth, with a smattering of benefits for withdrawal, and some deductions for your taxes. While a Roth IRA doesn’t offer deductible contributions, but lets the saver enjoy tax-free growth — meaning you pay nothing for withdrawals. Speak to a specialist to help you decide which is best for you.

6. Consider a catch-up contribution. Those who are 50 or older have a wonderful option available for their retirement. Called a catch-up contribution, it allows for those who didn’t have the ability to save like they would have liked, to boost their retirement savings. Ask your retirement planner about how to take advantage of this kind of retirement.

7. Long-term growth stocks. Don’t think of like you are playing the stock market, that’s a different kind of future. Instead, consider it like investing in the long-term. Stocks, after all, have the best return over long periods. So if you get a good stock tip, or know a solid broker, play your cards right, and invest in your retirement through stocks.

8. Bonds only work sometimes. Bonds used to have great staying power, prompting many individuals from yesteryear to invest heavily into them. Now, after 15 or so years, inflation begins to erode bonds, erasing the paying power they once had. So if bonds are an option, do your research beforehand.

9. Research what your Social Security benefits will be. Most American work their entire lives, contributing to Social Security with every paycheck. When you retire, Social Security contributes around 40% of what you would have made each month. Don’t hesitate to add this to your total when you are retirement planning.

10. Delay Social Security for max return. Many people accept Social Security as soon as they are eligible; no harm in that. However, for every year you delay it, once you are able to collect, you earn that much more when you aren’t able to work any longer, a boost that adds up very fast. So if you plan accordingly, and can work longer, delaying Social Security brings with it many benefits.

It’s never too soon to begin planning for retirement. Once you recognize that its time, that’s when you should take the next step. Don’t let starting too late end up as a regret in later in life, take action now.

For more information on how we can help you with your retirement, please contact us any time. We protect the people you love and the assets you love through thoughtful planning.

The post 10 Things to Help You with Retirement, and How to Boost Your Savings appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

Make a Plan and Stick To It

Meet with an attorney and create a retirement strategy for saving your earnings in IRA’s and 401(k)’s. Be strict with yourself. Do not break your plan even for one week. The earlier you start, the better off you will be when it is time for you to retire. The United States Department of Labor estimates that you will need around 70 percent of your pre-retirement earnings once you retire to maintain your current lifestyle.

Contribute to Employer 401(k) Plans

These plans are perfect for retirement. They don’t get taxed until they are cashed, so they grow in an account for years. Also, depending on your plan your employer may have to match your contributions to your account, so that you are putting back double. Despite these great plans in 2012 over 30 percent of private industry workers with access to 401(k) plans did not contribute to them. Do not let these opportunities pass you by.

Meet with An Adviser and Create an Investment Plan

If you invest young and hire an adviser to manage and grow your investments, by the time you retire you should have a nice chunk of change. Obviously, you need to find the right adviser for your needs, and formulate the best possible plan for the long-term with them. It is a good idea to put your money to work for you, so that you don’t have to constantly be worrying about saving all the time.

Consider a Stand Alone Retirement Plan Trust

Your IRA’s and 401(k)s are often one of your largest assets.  However, few individuals properly protect the retirement accounts for their beneficiaries because they are concerned about limiting the tax deferment.  However, with the use of Stand Alone Retirement Plan Trusts, you can have your cake and eat it too, by naming your SRT as the beneficiary of your retirement accounts.  This protects your beneficiaries from law suits and creditor actions sucking your retirement accounts dry.

Contact us for more information on retirement plans.

The post Make Your Retirement Plans Now Before It is Too Late appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

Health Insurance decreases the child support

The deductions for health insurance and their premiums are done from the gross income. The amount of such deductions depends on the number of children you have. Health insurance premiums are factored into the support calculation for each parent.

State and Federal Taxes and their effect on the Net Disposable Income

These are the amounts of taxes you pay on a yearly basis, such as income tax.  What is relevant is the tax filing status of the parties, and that is often dependent on which parent has over 50% custodial timeshare to be able to claim “head of household” filing status.  The tax deductions from your income are proportionate to the way you and your spouse file their taxes. At this point, it is vital to understand that the tax filing status of the spouses should be consistent.

Union dues and Retirements benefits

The mandatory union benefits deductions and retirement’s benefits that come in line with mandatory pension contributions can be deducted by Orange County divorce lawyers when the net disposable incomes are being calculated. If someone only makes voluntary, discretionary  contributions to a 401(k) plan or IRA, these aren’t deductible.

Expenses related to one’s job

In child support calculations, it is not unusual to see the courts allow the parent’s deduction in their net disposable income for expenses pertaining to their jobs. This, however, is only allowed by the court if the parent is able to show that the expenses are important, necessary, and reasonable for the person to classify as expenses on his job. These expenses shouldn’t be mistaken with the business expenses though, that are deducted when the courts are deciding the spouses’ income.

Child custody and child support cases in California are the most contested ones. Even after their  divorce, couples are always looking to get the best for their children. In such cases, it is important to realize that child support calculations can sometimes be complex and seeking the advice and counsel of a family law attorney in Orange County or where you otherwise live is highly recommended.

Gerald A. Maggio is an experienced Orange County divorce and family law attorney and family law attorney located in Irvine, California, serving the Orange County and Riverside areas. Mr. Maggio assists clients with legal issues including divorce, legal separation, divorce mediation, child custody, prenuptial agreements, stepparent adoptions, and other family law issues. Mr. Maggio has practiced law in California since 1999, and founded The Maggio Law Firm in 2005, focusing exclusively on divorce and family law matters.

[This article was originally printed in the Barrister, a publication of the Camden County Bar Association in November, 2014.]

Many business and professional people, including lawyers, have worked a long time and accumulated significant assets. There is an old saying: “It not what you earn, it is what you keep.” We live in a litigious society. Business and professional people have significant exposure to claims from creditors, because of the activities in which they engage and because they have assets and, therefore, make good targets. This is the first of a three-part article exploring strategies to protect hard-earned assets from claims of creditors. There are steps that can be taken to protect assets from these claims, if they are taken in a timely manner. An individual cannot wait until a claim is filed, or even until an incident has occurred that may lead to a claim, before taking action. Steps must be taken in advance. The Fraudulent Transfer Act is discussed below. This article will discuss the strategies for asset protection from simple to complex. Useful strategies include obtaining the proper insurance, proper titling of assets, retirement plans, structuring business assets, Domestic Asset Protection Trusts (DAPTs), and Off-Shore Trusts. Finally, an analysis will be made as to whether an individual is a good candidate for asset protection planning.

STRATEGIES      

There are a number of strategies available to protect assets. Some are quite simple, and others are complex.

INSURANCE

The basic first step for asset protection is insurance. Basic insurance includes automobile, homeowner’s insurance, and life insurance. The purpose of auto insurance and homeowner’s insurance is obvious. Life insurance is critical to help protect assets in the hands of surviving family members. Life insurance proceeds are generally free from the claims of creditors. Every professional should have adequate malpractice insurance. The amount of the insurance will depend on the professional’s exposure to risk. If commercial real estate is owned, fire and casualty insurance, together with liability insurance, is important. For business owners or individuals serving on boards of directors of for-profit entities, and non-profits, it is essential to obtain officer’s and director’s liability insurance. Personal umbrella insurance is extremely inexpensive. A personal umbrella insurance policy supplements the liability limits on standard policies. The insurance company issuing the umbrella policy will have certain minimums for the underlying policies and will cover liability in excess of those limits. Business interruption insurance is available to provide operating monies while a business is not operating due to certain casualties.

TITLING OF ASSETS

Proper titling of assets can be a useful strategy in asset protection planning. Litigation-prone professionals or business persons may choose to title the bulk of their family assets in the name of their spouse. This may offer some creditor protection, but it could hinder estate planning. If a primary residence is owned as tenants-by-the entireties, a judgment creditor cannot enforce a lien against the debtor so long as both spouses are residing in the home. Assets can be titled in the names of children. The problem is if the children are subject to claims of their own creditors, the transferred assets are at risk.

RETIREMENT PLANS

ERISA plans include employer-sponsored 401ks and defined benefit and defined contribution plans. These include both pension plans and profit-sharing plans. ERISA plans provide protection against all types of creditors. It should be understood that while creditors cannot assert a claim against funds while they are in the retirement account, they can make a claim on any distributions. In New Jersey,[1] IRA accounts are protected against the claims of creditors. The funds are protected while they are in the account, and distributions from the account are also protected. Under the Federal Bankruptcy Act, federal bankruptcy provides complete protection if the IRA is a rollover from a qualified ERISA plan. Under federal bankruptcy law the protection is limited to $1,000,000 if the IRA is not a rollover from an ERISA plan. An inherited IRA is not protected under federal bankruptcy law.[2]

ASSETS USED IN PROFESSION OR BUSINESS

There are a number of business entities that provide protection of business assets from claims of creditors. These include corporations, LLCs and LLPs. In utilizing these entities, it is often useful to establish separate entities for separate purposes. A corporation, properly operated, should protect business assets from claims of business creditors. For all intents and purposes, an LLC offers essentially the same creditor protection as a corporation with the same trap for the unwary (i.e., personal guarantees). Limited Liability Partnerships offer significant protection for limited partners. However, the general partner is exposed to claims of creditors. A general partner has unlimited liability for acts of the partnership. A solution to this problem is to form a corporation to serve as general partner. A good strategy is often to use separate business entities to own separate business assets. For example, a corporation might be formed to operate a business while a separate LLC might own business equipment and another LLC might own business real estate. Equipment and real estate could be leased to the corporation operating the business. The claim against one entity may not jeopardize assets owned by separate entities. It is critical in operating separate entities that funds not be mixed between or among those entities. Funds generated by the operating company must remain in the operating company. Funds generated by the leasing companies must remain separate in the leasing companies. If the operating company runs low on money, it should not borrow from the leasing companies.

Next month’s column will discuss Domestic Asset Protection Trusts and Off-Shore Trusts.

[1] N.J.S.A. 25:2-1.

[2] Clark v. Rameker, 573 U.S. ____ (2014).

For Michigan clients who have retirement accounts greater than $150,000, a Retirement Plan Trust makes a lot of sense for a variety of reasons.

Forced Stretch Out of Required Minimum Distributions (RMDs)

Thanks to the 2004, Private Letter Ruling, through a Retirement Plan Trust, your loved ones can now “stretch out” their taxable required minimum distributions (RMDs) over their lifetime, while maintaining all the benefits of a trust if a Retirement Plan Trust is named as a beneficiary.  Too often in the past, beneficiaries were named outright to receive the IRAs or 401(k)s and they ended up blowing the stretch out, by taking a lump sum distribution.

Not anymore.  The Retirement Plan Trust provides protection and can force the stretch out.

What is a Retirement Plan Trust?

A Retirement Plan Trust is a stand-alone trust created solely to hold retirement accounts.  It is a form of revocable trust, but separate from your typical revocable living trust.  It is established during the lifetime of the IRA holder and is named as a beneficiary of the IRA (typically after a spouse).

The Retirement Plan Trust is relatively new, so don’t be upset if your financial planner, CPA, or even your estate planning attorney is unfamiliar with it.  It is new as of 2004, when there was a private letter ruling from the IRS that allowed it.

How Does the Retirement Plan Trust Work?

First, the IRA owner must set up the Retirement Plan Trust during their lifetime and it must meet the strict IRS requirements.  Typically, it is set up as revocable trust, meaning it can be changed at any time.  The trust will name beneficiaries, the younger the more powerful the stretch out provisions become.

From there, new beneficiary designations must be completed, naming the Retirement Plan Trust as beneficiary.

Then at the owner’s death, the IRA account is retitled and the RMDs pour into the Retirement Plan Trust and are either paid out or held per it’s terms.  The beneficiaries of the account then receive the benefit of both the stretch out as well as the asset protection.

Want to Learn More about the Retirement Plan Trust?

Then request our free Retirement Plan Trust Guide.

The post Michigan Retirement Plan Trust Explained appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

The term 401k and individual retirement account (IRA) are thrown around quite a bit when discussing retirement planning and estate planning, but there are some large differences between the two accounts.

IRA vs. 401k

For starters, where there names.  A 401k is named as such due to the tax code that discusses it, while an IRA is an individual retirement plan.

Both IRAs and 401k’s allow you to put assets into an account to save for retirement.  Both allow you to begin taking distributions from these plans at age 59 1/2.

IRAs are further distinguished from 401k’s because there are two main types of IRAs.  There are Roth IRAs and traditional IRAs.  Roth IRAs allow you to pay the taxes up front and accumulate gains tax-free.  Compare that to your traditional IRA, where the taxes are paid only when you withdraw money.  A traditional IRA requires you to start taking minimum distributions at age 70 1/2, while a Roth has no such requirement.

Participation differs between IRAs and 401k’s.  In order to have a 401k, you must work for an employer that offers this as part of the benefit package.  Because this is indeed a benefit, an employer may limit who can join the plan.  An employer can then also make a contribution through deductions from a paycheck as well.

This differs from IRAs, where anyone who is younger than 70 1/2 and earns income can set up the IRA.  Typically, these are set up through a bank or financial institution.  As an individual, you are responsible for establishing the plan and contributing to it.

Beneficiaries of Your Retirement Accounts

An important point with both IRAs and 401k’s is who you name as a beneficiary.  By federal law, your spouse is automatically your beneficiary when you have a 401k, even if you list someone else.  To name someone other than your spouse as a beneficiary, you would need your spouse’s consent in writing.

An IRA allows you to name any beneficiary, with or without your spouse’s consent.

Standalone Retirement Plan Trust

Often times, it makes sense to name a Standalone Retirement Trust as the beneficiary of an IRA when leaving it to the next generation.  For more information on the benefits of the Standalone Retirement Plan Trust, contact our offices located in Brighton, Bloomfield Hills, Novi, or Livonia.

The post What is the Difference Between an IRA and a 401k appeared first on Estate Planning Lawyers | Elder Law Attorneys | Brighton | Novi | Livonia Elder Law Attorneys.

Choosing the Right Beneficiary

Many people assume that just because they have hit retirement age, they can simply take it easy and let the due process of law determine for them which of their loved ones can benefit from their retirement plans. However, as is always the case, it can be very easy to lose sight of certain things in the long run if you’re not being careful with how you bequeath your retirement plan like, for instance, your 401(k).

When most people open a retirement account, it can be fairly easy for them to gloss over some of the facts and just go straight to the “nitty-gritty”, as it were; in this case, it’s always naming their beneficiaries. While the spouses commonly get to be named as the beneficiaries to their significant spouses retirement plans, who do you name after your spouse?

The answer is, it depends.

It depends because for one, priorities and circumstances can change once we get older. And really, we’re not even talking about the likelihood of you and your spouse separating at some point in time; rather, it more has to do with the fact that that gesture may not prove to be the best choice not just for your spouse, but also for the rest of your family, too.

Here’s a more concrete example of what we are talking about: let’s say that you have named your spouse as the sole beneficiary to your 401(k) or IRA. When you pass on, your spouse now has the option of getting all your assets or, most likely, “rolling” yours over to his or her retirement plan.

Well, how about if you have other loved ones whom you think can benefit from your retirement plan? Well, that is where things get a little bit complicated.

Non-spouse beneficiaries do not have the option of rolling the deceased’s retirement plan into their own. However, they may have an “inherited IRA.”

With an inherited IRA, a beneficiary may stretch out the minimum required distributions over their life expectancy. However, there is no asset protection, so if there is a divorce, lawsuit, creditor action, the asset may be lost.

Naming beneficiaries are a tricky proposition, that too often are overlooked. Counsel with a Michigan estate planning lawyer to discuss the options, including stand-alone retirement plan trusts.

Choosing the Right Beneficiary

Many people assume that just because they have hit retirement age, they can simply take it easy and let the due process of law determine for them which of their loved ones can benefit from their retirement plans. However, as is always the case, it can be very easy to lose sight of certain things in the long run if you’re not being careful with how you bequeath your retirement plan like, for instance, your 401(k).

When most people open a retirement account, it can be fairly easy for them to gloss over some of the facts and just go straight to the “nitty-gritty”, as it were; in this case, it’s always naming their beneficiaries. While the spouses commonly get to be named as the beneficiaries to their significant spouses retirement plans, who do you name after your spouse?

The answer is, it depends.

It depends because for one, priorities and circumstances can change once we get older. And really, we’re not even talking about the likelihood of you and your spouse separating at some point in time; rather, it more has to do with the fact that that gesture may not prove to be the best choice not just for your spouse, but also for the rest of your family, too.

Here’s a more concrete example of what we are talking about: let’s say that you have named your spouse as the sole beneficiary to your 401(k) or IRA. When you pass on, your spouse now has the option of getting all your assets or, most likely, “rolling” yours over to his or her retirement plan.

Well, how about if you have other loved ones whom you think can benefit from your retirement plan? Well, that is where things get a little bit complicated.

Non-spouse beneficiaries do not have the option of rolling the deceased’s retirement plan into their own. However, they may have an “inherited IRA.”

With an inherited IRA, a beneficiary may stretch out the minimum required distributions over their life expectancy. However, there is no asset protection, so if there is a divorce, lawsuit, creditor action, the asset may be lost.

Naming beneficiaries are a tricky proposition, that too often are overlooked. Counsel with a Michigan estate planning lawyer to discuss the options, including stand-alone retirement plan trusts.

The post Choosing the RIGHT Beneficiary: How to Responsibly Leave Your Retirement Plan to the Loved Ones that Matter Most to You appeared first on Elder Care Firm.

With regard to pensions, such retirement plans are often divided by use of a Qualified Domestic Relations Order (“QDRO”), wherein the spouse that is not officially on the plan receives their community interest in the pension by a rollover IRA which avoids any tax implication to either party.  A 401K plan is often divided the same way.  Unlike a 401k whose value is whatever the current value in the account is, a pension is worth more in the future but does have a present day value that can be determined by use of an actuary, and such valuation can be considered in the division of all assets and debts in your case.

In addition, the business owed by you or your spouse or both parties is generally going to be considered a community property asset.  In a divorce, the spouse that is not the active party in the business is entitled to their one-half interest in the value of that business, but that value must be determined.  In order to figure out the value of a business, a forensic valuation of  the business needs to be done in order to attach a dollar figure to the value of the business.  Therefore, a forensic accountant needs to be hired by one or both of the parties, which will take time to complete and will come at a cost.  Once that value is determined, then the parties in the divorce can determine how the other spouse will be paid their share of the business, either from other assets of the marriage, or by a payment plan, or other agreed option.  For example, the controlling partner of the business can agree to give up their interest in the equity in the marital residence to offset the other party’s interest in the business.

The bottom line is that pensions and businesses are important assets that must be considered in your divorce case, because they have definite value that you want to receive your share of.  Consider the financial issues as part of a business deal that you are negotiating, and educate and empower yourself in the process so that you can control your financial future by protecting your financial interests in your divorce.

Gerald A. Maggio is an experienced Orange County divorce and family law attorney and family law attorney located in Irvine, California, serving the Orange County and Riverside areas. Mr. Maggio assists clients with legal issues including divorce, legal separation, divorce mediation, child custody, prenuptial agreements, stepparent adoptions, and other family law issues. Mr. Maggio has practiced law in California since 1999, and founded The Maggio Law Firm in 2005, focusing exclusively on divorce and family law matters.

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When the deceased’s spouse is still living, all community property (meaning property acquired during the marriage) automatically goes to the spouse, while separate property (meaning property acquired before the marriage or gifts and inheritance gifted to only one spouse) is split differently depending on the relationship the deceased shares with other living relatives. 

If the deceased had more than one child with the living spouse, then the spouse will receive one-third of the deceased’s separate property, with the other two-thirds being divided equally among the children.

If the couple only has one surviving child or no children, then the spouse receives one-half of all separately owned property. The remaining half is then either given to the child, or, if there is no child, divided among the deceased’s parents, or the deceased’s siblings if the parents are no longer living.

Legally separated partners do not have any claim to property under California intestate succession laws.

Not all assets fall under this realm of intestate succession laws. Property transferred to a living trust, an IRA, a 401(k), payable-on-death bank accounts, life insurance proceeds and property owned jointly with someone who is not a spouse are all assets which will go to the beneficiary named on their legal paperwork.

Intestacy laws can become quite complicated to navigate, so legal and financial advisors strongly encourage all individuals to create a living will with an attorney as soon as they are able. Living wills enable an individual to transfer property to desired beneficiaries regardless of state intestate succession laws.

Pioneers of Elder Law – For over 30 years, Gilfix & La Poll Associates LLP has innovated creative legal solutions to help you manage and plan the future of your estate.
To contact an estate planning lawyer visit http://www.gilfix.com/ or call 800.244.9424.

1. Division of Property

Generally, for property transfer between divorcing parties as part of a divorce settlement, there is no tax implication.  That can include transfer of ownership of real property.

However, there can be tax implications when an asset like a retirement account is split.  For example, to divide a 401(k) plan, you cannot simply withdraw funds from the plan without penalties and taxes.  Therefore, a Qualified Domestic Relations Order is often required to divide such plans by a rollover IRA to the other spouse to avoid taxes.

2. Income Tax Filing Status

If a couple is separated and going through a divorce but have not finalized the divorce, they can generally file as “married filing jointly” or “married filing separately.” However, if one of the parties is not willing to file jointly under these circumstances, that party cannot be forced to do so.  Only a tax professional can truly determine what filing status makes the most sense for the parties.

The timing of entry of the divorce judgment also determines how a divorcing couple can file their taxes.  If the divorce judgment is filed and entered prior to the end of the year, that judgment terminates marital status and that means the parties cannot file jointly or “married filing separately.”  So it sometimes makes sense to wait to file the divorce judgment until after January 1^st if the parties wish to file jointly.

After the divorce judgment has been filed, generally the divorced parties will each file as “single” or “head of household” filing status.  It is important to know that pursuant to the IRS Code, a parent that has over 50% physical custody of a child is entitled to file as “head of household” and the other parent cannot.  Even if the other parent has 49.9% physical custody, they are not entitled to file as “head of household.”  The parent with over 50% custody is generally also entitled to claim the child as a tax exemption too.

3. Child and Spousal Support

There are 2 simple rules regarding the deductibility of child and spousal support payments are as follows:

• Child support is not tax-deductible to the person paying the support, and does not have to be claimed as “income” by the receiving party.
• Spousal support (a.k.a. “alimony”) is tax-deductible to the person paying the support, much like mortgage interest.  For the divorced party receiving spousal support, that party has to claim such spousal support payments on their income tax returns and will be taxed on those payments, so that party should pay accordingly and adjust their tax payments during the year pursuant to the recommendations of their tax professional.

The tax issues related to divorce can be complex, and it is highly advisable that divorcing parties consult with an experienced tax professional both during their divorce and when working towards a final divorce judgment that will include a division of property, support orders, and so on.  The more information available to parties enables for a more carefully-negotiated divorce settlement that avoids tax pitfalls.

For further information or to schedule a consultation with Orange County divorce attorney Gerald Maggio of The Maggio Law Firm, please call (949) 553-0304 or visit www.maggiolawfirm.com.  The Maggio Law Firm is an experienced divorce and family law firm serving the Orange County and Riverside areas and neighboring counties, serving clients with legal issues including divorce, legal separation, spousal support, child support and child custody issues.

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Don’t leave your IRA outright to a kid.

In the big news department, the Supreme Court held in Clark v. Rameker that inherited IRA’s are not asset protected.  There were differing opinions on whether an inherited IRA would be protected against bankruptcy, however it is now clear that they are not.
Here’s the facts, at death Ms. Heffrom owned an IRA worth about $300k, with her daughter Mrs. Heffron-Clark named as the designated beneficiary.  When Mom’s account passed to daughter, daughter and her husband were in the middle of bankruptcy proceedings.

It’s common knowledge that IRA’s are protected assets that are protected against such proceedings.  However, the issue is whether an inherited IRA is a “retirement fund” under the bankruptcy code.

The Supreme Court unanimously ruled that the inherited IRA was NOT a “retirement fund” under the bankruptcy code and was not protected.

Sooooo………what does this mean?

Well it means for Michigan clients who have retirement accounts greater than $250,000 then those IRA’s should not be given outright to children, but instead should be held in Stand Alone Retirement Plan Trusts (RPTs) to provide asset protection against creditors and bankruptcy proceedings.

Don’t leave your IRA outright to a kid.

In the big news department, the Supreme Court held in Clark v. Rameker that inherited IRA’s are not asset protected.  There were differing opinions on whether an inherited IRA would be protected against bankruptcy, however it is now clear that they are not.
Here’s the facts, at death Ms. Heffrom owned an IRA worth about $300k, with her daughter Mrs. Heffron-Clark named as the designated beneficiary.  When Mom’s account passed to daughter, daughter and her husband were in the middle of bankruptcy proceedings.

It’s common knowledge that IRA’s are protected assets that are protected against such proceedings.  However, the issue is whether an inherited IRA is a “retirement fund” under the bankruptcy code.

The Supreme Court unanimously ruled that the inherited IRA was NOT a “retirement fund” under the bankruptcy code and was not protected.

Sooooo………what does this mean?

Well it means for Michigan clients who have retirement accounts greater than $250,000 then those IRA’s should not be given outright to children, but instead should be held in Stand Alone Retirement Plan Trusts (RPTs) to provide asset protection against creditors and bankruptcy proceedings.

The post BIG NEWS: Supreme Court Holds Inherited IRAs are Not Protected Anymore appeared first on Elder Care Firm.

Standalone Retirement Plan Trust

A common question I hear is “who should be named for beneficiaries of an IRA or retirement account?”  Should it be the spouse, the kids, the revocable living trust?  Typically, I hear, even professionals, say that it should be spouse first to accommodate a spousal rollover, then the living trust while the kids are minors, and then the kids, once they become adults.

There is some wisdom in this planning, however, it is missing a huge opportunity that not enough estate planing lawyers and financial professionals are brining up.  That being the Standalone Retirement Plan Trust.

The common wisdom is that it makes sense to name a spouse or individual the beneficiary of an IRA or retirement account for tax purposes.  What this allows is for a spousal rollover and continued deferment of taxes for a spouse.  For an individual, it would allow for an inherited IRA.

However, what happens if the beneficiary has long-term care issues, medical problems, divorce, creditor issues, or bankruptcy issues?  That IRA could be going “bye-bye”.  Michigan inherited IRAs are not asset protected.

Or what if the beneficiary cannot be trusted to manage the money properly.  If you name a beneficiary outright as beneficiary of the IRA, they could choose to take the IRA as a lump sum, destroying the goal of deferring paying taxes as long as possible.

The solution to this is the Standalone Retirement Plan Trust.

With the Standalone Retirement Plan Trust you can force the stretch out of the IRA for the beneficiary, build in asset protection, and protect the beneficiary against creditors and their own poor mismanagement.

I have no clue while more lawyers and financial planners are not recommending this more to their clients.  If you have an IRA or retirement account with a balance greater than $250,000 then it should be a planning tool that is part of the equation.

Standalone Retirement Plan Trust

A common question I hear is “who should be named for beneficiaries of an IRA or retirement account?”  Should it be the spouse, the kids, the revocable living trust?  Typically, I hear, even professionals, say that it should be spouse first to accommodate a spousal rollover, then the living trust while the kids are minors, and then the kids, once they become adults.

There is some wisdom in this planning, however, it is missing a huge opportunity that not enough estate planing lawyers and financial professionals are brining up.  That being the Standalone Retirement Plan Trust.

The common wisdom is that it makes sense to name a spouse or individual the beneficiary of an IRA or retirement account for tax purposes.  What this allows is for a spousal rollover and continued deferment of taxes for a spouse.  For an individual, it would allow for an inherited IRA.

However, what happens if the beneficiary has long-term care issues, medical problems, divorce, creditor issues, or bankruptcy issues?  That IRA could be going “bye-bye”.  Michigan inherited IRAs are not asset protected.

Or what if the beneficiary cannot be trusted to manage the money properly.  If you name a beneficiary outright as beneficiary of the IRA, they could choose to take the IRA as a lump sum, destroying the goal of deferring paying taxes as long as possible.

The solution to this is the Standalone Retirement Plan Trust.

With the Standalone Retirement Plan Trust you can force the stretch out of the IRA for the beneficiary, build in asset protection, and protect the beneficiary against creditors and their own poor mismanagement.

I have no clue while more lawyers and financial planners are not recommending this more to their clients.  If you have an IRA or retirement account with a balance greater than $250,000 then it should be a planning tool that is part of the equation.

The post How to Title IRA Beneficiary Designations appeared first on Elder Care Firm.

A 401(k) is a retirement savings account provided by one’s employer, who may also match the employee’s contributions up to a certain amount. Contributions are deducted from an employee’s paycheck before taxes, so taxes are not paid until the funds are withdrawn during retirement. For 2013, the maximum pre-tax contribution is $17,500.

An individual retirement account (IRA) is another type of retirement savings plan. One type, the Savings Incentive Match Plan for Employees (SIMPLE) IRA, functions much like a 401(k), in that an employer matches employee contributions. The other types of IRAs are not connected to one’s employer. The most common types are traditional IRAs and Roth IRAs.

With a traditional IRA, funds are deposited before taxes, and withdrawals upon retirement are taxed as income. By contrast, with a Roth IRA, contributions are made after taxes, and withdrawals are not taxed. In 2013, the maximum contribution to a Roth IRA is $5,500, or $6,500 for people age 50 and older.

If you do not yet have a tax-advantaged retirement savings account set up, now is the time to start one. If you are already contributing to such an account, then as we draw closer to the end of the year, it is a good time to take stock of how much you have contributed, and add to your contributions for the year if you can.

Contact an estate planning lawyer with the McDevitt Law Office of call 1-571-223-7642.

However, nothing is guaranteed. It is may be in your best interest to diversify your post-retirement income and your savings in as safe as manner as possible. Even the best pension should not be considered your entire safety net. If you or your spouse is a local or state government worker, Social Security benefits at retirement will likely not apply to you.

You may wish to explore contributing to a 403(b) or 457(b) supplemental retirement plan or your own IRA. Speak with an estate planning attorney to determine how you can contribute to your pension fund and an individual retirement account to best secure your future.

Christopher J. Berry is a Michigan estate planning attorney and Medicaid planning lawyer dedicated to helping seniors, veterans and their families navigate the long-term care maze. To learn more visit http://www.theeldercarefirm.com/ or call 248.481.4000

Naming the right beneficiary could result in years of tax-deferred savings

By Chris Berry

Would you like to transform your modest tax-deferred account into millions for your family? Based on whom you name as beneficiary, this money can continue growing tax-deferred for your children’s or grandchildren’s lifetimes.

Typically, after you turn 70 1/2, or your required beginning date, the government makes you start taking money out. However, naming the right beneficiary can ensure that your money continues to grow tax-deferred for decades.

(Related: How to Choose a Caregiver)

 To calculate your required minimum distribution you must annually divide the year-end value of your account by a life expectancy divisor from the Uniform Lifetime Table (provided by the IRS). This produces the minimum required to be withdrawn from the account for that year. You can choose to take out more, of course.

There was a time when your beneficiary could affect your distribution, but no longer. Distributions are based on your beneficiary’s life expectancy (or your remaining life expectancy if you die without one.) However, naming the right beneficiary is still imperative to receiving the most tax-deferred growth.

When naming a beneficiary you have five basic options: your spouse, if married; your children, grandchildren or other individuals: a trust, charity, or some combination of the above.

(Related: VA Initiative Could Increase the Dollar Benefit for Disability Claims)

The majority of married folk name their spouse as beneficiary because the money becomes available to provide for the surviving spouse, and the spousal rollover option offers additional years of tax-deferred growth. Additionally, in the event that your spouse is more than 10 years younger than you are, you are able to use a different life expectancy chart to lower your required distribution.

If you die first, your surviving spouse can “roll over” your tax-deferred account into his or her personal IRA, delaying income taxes until he or she is required to take minimum distributions on April 1 after age 70 1/2.

(Related: Advance Care Planning Lessons for Oakland County Residents)

Your spouse will name a new beneficiary once he or she does the rollover. It is best to name someone much younger, relative to how old your children and/or grandchildren are. After your spouse died, the beneficiary’s actual life expectancy can be used for the remaining required minimum distributions.

Christopher J. Berry is a Michigan estate planning attorney and Medicaid planning lawyer dedicated to helping seniors, veterans and their families navigate the long-term care maze. To learn more visit http://www.theeldercarefirm.com/ or call 248.481.4000

In comparison, those with defined-benefit plans – pensions – tend to feel a lot more secure about their post-retirement income, and with good reason: pensions are reliable. Private pensions are insured by the Pension Benefit Guaranty Corporation, an independent government agency, and government pensions are considered rock-solid.

The city of Detroit’s recent bankruptcy filing, however, might give those government pensioners and future pensioners pause. Pensions represent a huge and growing share of the city’s expenses that contributes significantly to its dire financial straits. If Detroit’s bankruptcy is allowed to continue – it is currently held up in court – it may very well mean that pension promises are broken and retirees’ benefits will be cut.

When planning for retirement, it is important to diversify your savings and your post-retirement income. No matter how large and reliable your pension, it should not constitute the entirety of your nest egg. Remember, many state and local government workers are not covered by Social Security.

If you have an option to contribute to a supplemental retirement plan, such as a 403(b) or 457(b) account, do so. If not, set up your own IRA, even if your contributions will not be tax-deductible. Consult with an estate planning attorney to decide on the right mix of contributions to pension funds and individual retirement accounts.

The elder law attorneys at Hook Law Center assist Virginia families with will preparation, trust & estate administration, guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.

Individual retirement accounts (IRAs) and 401(k)s are very popular, because they offer significant tax advantages. But most assets held in those accounts are vulnerable to significant fluctuations in value.

The Center for American Progress (CAP), a nonpartisan think tank, has an idea of how to change the way these accounts work. CAP’s proposal would have workers receive guaranteed payments for life. It would also relieve employers of the burden of management costs and fiduciary responsibilities.

The retirement plans that CAP proposes would be organized as nonprofit legal entities run by independent boards that contract with investment firms. They would pool contributions to command lower fees and thus higher returns. Taxes would not pay for any of the plans’ operating expenses.

An independent analysis showed the plans would require significantly lower contributions than an IRA in order to achieve a given payout.

IRAs and 401(k)s are a big business that will not be revamped overnight, but fresh ideas are needed. Many current and future retirees will not have the post-retirement income security they need. Estate planning is crucial to protect your future.

Individual retirement accounts (IRAs) and 401(k) savings plans have several advantages. First, they are an easy way to begin saving for retirement when you should: as early as possible. Any employer contributions add to your savings, and there are long-term tax advantages, in that taxes are deferred on the money you save.

Now there is an additional tax incentive that you do not have to wait until retirement to take advantage of: The Saver’s Credit is a credit of up to $1,000 (or $2,000 for a married couple filing jointly) for IRA and 401(k) contributions. A credit is better than a deduction: it is a dollar-for-dollar reduction of the income taxes you owe or a refund of what you have already paid.

Income limits apply. For 2013 they are: $59,000 if married filing jointly; $44,250 if filing as head of household; and $29,500 if single or married filing separately. The amount of the credit is also dependent on income, with lower-income earners eligible for a higher credit. There are three tiers, with the credit calculated as 10 percent, 20 percent or 50 percent of the first $2,000 saved.

Individuals claiming the credit must be 18 years of age, not a full-time student and not claimed as a dependent on another person’s tax return.

Contributions made to employer-sponsored 401(k)s, traditional IRAs and Roth IRAs all count toward the credit, and so do contributions to a Savings Incentive Match Plan for Employees (SIMPLE) plan, a governmental 457 plan, a 403(b) plan or a Simplified Employee Pension (SEP). Only funds you contribute to the plan, not your employer’s contributions, may be counted. If you have more than one of these savings plans, the credit is calculated according to the total you contribute to all of them.

If you withdraw money from your retirement savings plan, you may still claim the credit, but the amount you withdrew counts against the amount of savings you can apply to it. The same goes for a withdrawal from a Roth IRA, but if you rolled the amount into another eligible retirement plan, then it does not count against the credit.

In 2010, more than $1 billion in Saver’s Credits were claimed on over 6 million income tax returns. Although the credit can be worth up to $2,000 for a married couple filing jointly, most taxpayers received a smaller deduction. The average credit for married couples was $204, $122 for individuals and $165 for heads of households.

The Saver’s Credit started in 2002 as a temporary provision and was made permanent in 2006, but most workers have never heard of it, though a majority are aware of the long-term tax advantages of IRAs and 401(k)s.

To take advantage of the credit, complete Form 8880, Credit for Qualified Retirement Savings Contributions to determine your credit rate and transfer the amount to your 1040 or 1040a. (The credit is not available for filers using the 1040EZ.)

Your retirement plan already has long-term tax advantages; the Saver’s Credit offers an incentive now.

For more information on planning for retirement, visit www.littmankrooks.com.

In order to ensure you are following the letter of the law, your best bet is to find a lawyer with experience in estate planning for same-sex couples in Ferndale. This person will have a good understanding of what issues need to be addressed as well as how current laws are being interpreted by the legal system.

Keep in mind that estate planning laws and domestic partnership, marriage, and related laws are continually in flux.  What was true when Bob and Gary did their estate planning may have changed drastically now that Anita and Jane are getting their documents in order.

Not only are there ongoing changes to Michigan estate planning laws and their meanings for same-sex couples, but they vary from state to state, which can affect those who have residences outside of Michigan or even those who travel.

Some of the issues you’ll want to discuss with your estate planning attorney include:

• Can we use “right of survivorship?”
• Should I name my partner as the beneficiary of my will?
• Is some kind of a trust a better option for our situation?
• What kind of taxes will my partner be expected to pay?
• How can I ensure my IRA or 401(k) will go to my partner?
• Will my partner have rights in the event of my death or incapacity?

Of course, if you and your partner have children, there can be even more estate planning issues to contend with.  You will definitely want an attorney involved to help protect the surviving partner’s rights to your children.  There are a few different tools which can be helpful in this situation, and it’s not recommended to simply rely on naming the partner as the child’s legal guardian.

It’s the unfortunate truth that same-sex couples currently have a larger estate-planning burden than their married heterosexual counterparts.  From setting up a domestic partnership to adopting children to naming beneficiaries, there are many legal aspects of same-sex partnerships which need to be addressed in order to provide even similar protections as those granted by a legal marriage in Michigan.

Christopher J. Berry is an elder law attorney Dedicated to helping seniors, veterans and their families navigate the long-term care maze. To learn more visit http://www.michiganelderlawattorney.com/ or call 248.481.4000

First of all, your estate will be expected to pay off credit card debt when you die. In fact, whatever you leave behind will first be used to pay for any outstanding debt. Creditors of all kinds will have first crack at what you (or your heirs) will have. Contacting the creditors and getting these debts paid off is one of the most important jobs of the executor of your estate.

However, credit cards aren’t necessarily the first thing that will be paid off, but they are definitely on the list. If your estate doesn’t have the necessary assets to pay, then other courses of action may be available to those trying to collect on the debt. If there is another name on the account, for example, they can go after that person for an outstanding balance.

This is important to note if you’ve put your adult child on any of your accounts. Doing so is a fairly common practice, as it can make it easier for the adult child if they are helping by picking up groceries, paying bills, etc. By having them on your accounts, they can simply use their own cards for your purchases.

Unfortunately, if and when you pass away, they could become responsible for the entire balance on any of those accounts. Having them on bank accounts could even have tax implications. It is really a good idea to work with a Bloomfield Hills estate attorney in order to determine what the state and federal laws are as they apply to your situation. One possibility is to have the adult child or other caregiver listed on the account as an “authorized user.”

Just what funds are used to pay off outstanding credit card debt after death can vary. In most cases, for example, retirement accounts such as IRA and 401(k) plans with a specific beneficiary are not considered part of the estate. Those funds pass directly to the named party and do not go through probate and are not available to pay creditors. This may also be the case with life insurance policies. Things can get a bit more complicated when talking about real estate or jointly held assets, however. For example, can one spouse be forced to sell a home that has been inherited by a partner who had a large credit card debt in his or her name?

Laws regarding this and similar issues vary from state to state, which means that your best bet is to work with a Bloomfield Hills estate planning lawyer to determine what our laws mean for you and your estate.

Christopher J. Berry is a Michigan estate planning attorney and Medicaid planning lawyer dedicated to helping seniors, veterans and their families navigate the long-term care maze. To learn more visit http://www.michiganelderlawattorney.com/ or call 248.481.4000

Can you and your family benefit from having an IRA trust as part of your overall plan?

An IRA trust can help you better control distributions after you pass away and restrict access to beneficiaries who might squander the funds of a large IRA. How? Let’s say your IRA is left directly to your beneficiaries outside of a trust. In this situation, your beneficiaries can immediately cash out your IRA and spend the money however they choose. The trouble is, when the IRA is cashed out, not only is the ability to stretch the required minimum distributions (RMDs) over the beneficiary’s lifetime lost, but all of the amount withdrawn will be taxable in the withdrawal year.

(Related: Oakland County Newlywed Planning for a Better Financial Future – A Few Simple Things to Do)

Or consider this scenario: If you name a minor grandchild as the direct beneficiary of your IRA, a guardianship or conservatorship will need to be established to manage the IRA until he or she reaches the age of 18. Then, when the grandchild reaches 18, he or she can withdraw all of what remains in the IRA. An IRA trust can put restrictions on how your IRA is spent, as well as when and how much a beneficiary can withdraw. This can provide important tax benefits if, for example, the beneficiary already has a taxable estate, since the IRA trust can be drafted to minimize or even eliminate estate taxes in the beneficiary’s own estate. In addition, the IRA trust has the potential to create an ongoing legacy for your family, because the IRA assets not used during a beneficiary’s lifetime can continue in trust for the benefit of the beneficiary’s descendants.

(Related: The Gift That Keeps On Giving: Paying Your Grandchildren’s College Tuition)

If you are in a second marriage, an IRA trust can prove particularly valuable. In a typical second marriage situation, you’ll want to leave your spouse the annual IRA income, but after his or her death you may well want to make sure that the IRA goes only to your children, not the children from the spouse’s first marriage. An IRA trust can help you accomplish this. Or what about a situation in which you dislike or do not trust your son or daughter in law? If you leave your IRA outright to your child, his or her spouse may be able to talk them into liquidating it. However, if you name a trust as the IRA beneficiary, your child won’t be able to liquidate the IRA—and suffer the potentially painful financial consequences.

(Related: Let’s Make Estate Planning Easier For Your Survivors)

Similarly, if you fear that your son or daughter is not yet mature enough to handle the money in your IRA, but you hope one day they will be, an IRA trust can allow you to name them as beneficiaries but put restrictions on how they can utilize the money.

Finally, even though IRAs are protected from the claims of creditors in many states, when the IRA account owner dies and the assets go to an individual beneficiary, the IRA loses its protected status. By putting these assets into a subtrust created for an individual beneficiary under the terms of an IRA trust, the assets will continue to be protected. The result? The IRA assets can remain intact for the benefit of the beneficiary in the event a lawsuit is filed against the beneficiary, if a married beneficiary later divorces, or if a single beneficiary gets married and later divorces.

(Related: Crisis Planning Worksheet to Support Caregivers)

To determine whether you and your family would benefit from having an IRA trust as part of your overall plan, please contact us for an initial consultation.