Door County WI Estate Planning Blog

Who Should Be The Beneficiary Of Your IRA?

As of December 31, 2010, individuals hold nearly $17.5 trillion in IRAs and Qualified Plans.  These assets now account for 37% of all household financial assets.  Because of the way lifetime required minimum distributions are now calculated, retirement plans will frequently be the largest asset held at death.

With a properly drafted trust and a properly completed beneficiary designation form you can leave a $100,000 IRA to a 25 year old beneficiary that will provide the beneficiary with $400,000 of after tax income over his life expectancy with the all the benefits normally associated with leaving property to a beneficiary in trust.  Compare this with the $60,000 the beneficiary would receive if left to a trust that, because of either the way the trust was drafted or the way the beneficiary designation was made, does not qualify for look-through status.  Contact Ross Estate Planning to get a copy of our article The Six Biggest IRA Beneficiary Mistakes.

See also the chart :"ABOUT ASK BOB" from the The Big IRA Book

What to Do with an Inherited IRA

IRAs are among the largest assets inherited by heirs and beneficiaries. These accounts have been able to grow to such large amounts because income taxes are deferred until the owner begins to take distributions, usually after reaching age 70 ½. Those who inherit an IRA must be very careful to follow the rules, which are complicated and often confusing. It is possible to keep an account growing tax-deferred for decades, but an innocent error can cause the recipient to lose the tax-deferred advantage and force her to pay tax now on the entire account balance. As a result, it is critical to talk with an expert before making any decision or taking any action, and to understand all available options. Call Ross Estate Planning for help. Ask for our Article The Six Biggest Ira Beneficiary Mistakes. Here are some to consider.

Cash Out Option
Anyone who inherits an IRA can cash it out and withdraw the full amount. But because income taxes must be paid on the full amount at one time, this is not usually the best choice. You become an involuntary philanthropist, and your charity of choice is Uncle Sam.

Spouse Options
A surviving spouse who inherits an IRA from his/her spouse can roll it into a new IRA or merge it with his/her own IRA. In either case, the account can continue to grow tax-deferred and the surviving spouse can continue to make contributions until he/she must start taking required distributions (after age 70 ½).

If it is rolled into a new IRA, the surviving spouse will name new beneficiaries. It is highly advantageous to name someone who is much younger (e.g., children and/or grandchildren) because after the surviving spouse’s death, distributions will be based on the beneficiary’s actual life expectancy. This will allow the account to continue to grow tax-deferred for decades. Under IRS rules, this rollover and stretch out can be done even if the original owner spouse had started taking required minimum distributions before he/she died.

Individual Non-Spouse Options
If the original owner died before beginning to receive required distributions, a non-spouse beneficiary can establish a Beneficiary Inherited IRA and start taking annual distributions based on his/her own life expectancy, with the option to take more at any time. (This referred to as a "Stretch IRA.”) This must be done by the end of the year following the original owner’s death. If the first distribution is not taken by then, all of the IRA must be withdrawn by December 31 of the fifth year after the owner’s death. (This is called the “five year rule.”)

If the original owner died after beginning to receive required distributions, a non-spouse beneficiary must take a distribution equal to the owner’s required minimum distribution for the year he/she died if one had not been taken. For subsequent years, distributions can be based on either the new owner’s life expectancy or the original owner’s remaining life expectancy (whichever is longer).

The original owner’s name must be listed on the title, along with the beneficiary but the inheriting beneficiary will name new beneficiary(ies). A non-spouse beneficiary cannot roll an inherited IRA into his/her own IRA or make contributions to an inherited IRA, as a spouse can. But when distributions are stretched out over a longer period of time, the tax payments are also stretched out. And by keeping more money in the IRA for as long as possible, the tax-deferred growth can be maximized…which will result in a much larger balance. What a marvelous way to provide for grandchildren.

Charitable Option

Name one or more Charities and all of the IRA will pass estate tax free.

The most-overlooked estate planning tool that's free to everyone

 What did you do with that envelope that used to arrive once a year with estimates of your future Social Security benefits? You might have reviewed the information. You may have even filed the statement away as a reference. Now, this powerful planning tool is only available by using your computer.

"Often, people don't think of their Social Security statement when thinking of their financial well-being," says Rod Griffin, director of public education for Experian. "But your statement can be a valuable planning tool."

Your SSA statement is now available online at www.socialsecurity.gov/mystatement. It provides an estimate of the amount of Social Security benefits you could receive upon retiring, but it can also help you with retirement savings strategies and making decisions about estate planning.

To access your statement, go to www.socialsecurity.gov/mystatement, create an account and provide the information as prompted. You'll be able to access your benefit information and even see a history of your annual earnings for every year. For more information on how to live financially smart, go to www.livecreditsmart.com.

You can also contact Ross Estate Planning and request a copy of our DVD on the 10 Myths about Social Security.

Wondering how to ensure your family values, traditions and history are passed on to future generations?  Here are some ideas from Door County Estate Planning Attorney Robert Ross to help you get started.

• Encourage elders to tell stories about their family and their own lives and experiences.  Family gatherings when multiple generations are present are perfect, but one-on-one conversations work well too.  Videotape as much as possible to capture not only words, but also the storyteller's personality and mannerisms.  No need to have a formal interview; just put the camera on and let it roll.  Don't tape too long at a time though; the storyteller could tire easily.  If you don't have video equipment, assign someone to take notes and share the stories with other family members.
• Scrapbooking and photo albums are great ways to document family history by themes and occasions.  Just be sure photos are identified with names, dates, and places.
• Write your memoirs or autobiography, family history, or a collection of essays about your relatives or what life was like when you were growing up.
• Write letters to your children or grandchildren about life lessons you would like them to learn from you.
• Share your faith and/or testimony with family members in person or in writing.
• Create a family medical history.  Include date and location of births and deaths, cause of death, burial location, marriages and children, notable illnesses and medical conditions.
• Make an inventory of special family heirlooms and possessions.  Take a photo of each and document its story.  If you want a certain person to receive a certain item, include that in your estate plan.  Better yet, if you can bear to part with it, go ahead and give it to that person now.
• Use the internet to share family history and traditions with other members of your family.  Create a family website.  Post stories or videos of your elder storytellers and old family photos.  Document family reunions, marriages, births, and passings.

Note:   If you store information on your computer or online, be sure to provide access for someone else in the event something happens to you.  Include specific information about where files or accounts are located and passwords that might be needed to access them.

Most importantly, talk with your parents or children about end-of-life issues (incapacity and health care directives, location of important financial documents, estate planning) and what is important to them and to you.  Do this now, before illness or aging interfere and prevent you from having these discussions.

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For more information call Ross Estate Planning at 920-743-9117.

 

CELEBRATING FAMILY CAREGIVERS – NOVEMBER IS

NATIONAL CAREGIVERS MONTH

Statistics from the Administration On Aging show that the population 65 and older is expected to grow from its current 13% to 19% of the total population by 2030. With the older population increasing, the need for elder caregiving will continue to increase. Family caregivers play a vital role in filling these caregiving needs. Who better than family can understand the needs and ensure the best care of their loved ones.

Caregiving can be very stressful and demanding. In the case of a healthy spouse or a child living with the disabled person at home, caregiving can be a 24 hour, 7 day a week commitment. But even for the caregiver not living in the home, looking after a loved one or friend can consume all of the caregiver's free time.

Most family members go into informal caregiving without training or counseling. It is  extremely important to formulate a plan of action prior to making a caregiving commitment. Assistance is available all over the country. Area Agencies on Aging and local senior centers give aid and support to family caregivers. Numerous religious and community organizations also lend their support.

Next month of November 2012, as individuals, we can take note of those around us, in our families and community, who are family caregivers. A note of acknowledgement of their service, a gift of thanks or even an offering of our time to give them a needed break would let them know their service is recognized and appreciated.

Where Does the Charitable IRA Rollover Stand?

As we head toward the end of the calendar year, I’ve been asked about the status of the Charitable IRA Rollover. This is the tax law provision that allowed taxpayers who were 70½ or older to transfer as much as $100,000 a year directly from their IRAs to qualified charities without tax penalties and to count towards their required distribution. Congress let the Charitable IRA Rollover provision expire as of December 2011.

There is little chance that it will be reinstated before the November election. Fortunately, there is support for the provision on Capitol Hill. The Senate Finance Committee did vote to include the IRA Rollover, through 2013, in the so-called Tax Extenders legislation.

If you support the IRA Rollover provision, contact your Representative and Senators to let them know they should support it, too.

Congress need to hear from many individuals and organizations.

“Most people don’t have a simple Family Love Letter,” which includes an inventory of advisors, assets and other information. It even contains details like account passwords. Checkout our new Digital Inventory worksheet.

Each of Ross Estate Planning Portfolios have a place for all of this information to be provided to your family and Advisors. We call it your homework. We have thought of simple stuff like putting down the whereabouts of a bank safety deposit box, and the personal property list.

Is your Family Love Letter up to date? If not check out a new service for Ross Estate Planning clients called "LegalVault".

Get Ready for a New Tax on January 1, 2013!

It is really happening. A new 3.8% tax increase will start Jan 1, 2013.

This new surtax will be assessed on married taxpayers filing jointly, the threshold  income amount is $250,000; married filing separately, $125,000; all other individual taxpayers, $200,000. For trusts and estates, it is the beginning of the top income tax bracket ($11,650 in 2012).

The good news is that there are some steps you can take this year to help you avoid or reduce the amount of surtax beginning in 2013.

This [3.8%] tax alone makes accelerating investment income into 2012 profitable for many taxpayers. Roth conversions in 2012 should be considered.

Now, more than ever, you need the assistance of experienced professionals to advise you and help you implement the best plan for you and your family.

Get Ready for a New Tax on January 1, 2013!

It is really happening. A new 3.8% tax increase will start Jan 1, 2013.

This new surtax will be assessed on married taxpayers filing jointly, the threshold  income amount is $250,000; married filing separately, $125,000; all other individual taxpayers, $200,000. For trusts and estates, it is the beginning of the top income tax bracket ($11,650 in 2012).

The good news is that there are some steps you can take this year to help you avoid or reduce the amount of surtax beginning in 2013.

This [3.8%] tax alone makes accelerating investment income into 2012 profitable for many taxpayers. Roth conversions in 2012 should be considered.

Now, more than ever, you need the assistance of experienced professionals to advise you and help you implement the best plan for you and your family.

Bob Ross Estate Planning

Over the years, Northwestern Mutual has conducted a number of studies on financial literacy. One of the key findings is that kids' financial savvy and money habits don't come from celebrities, friends, media or even teachers - it's parents who have the most influence on the way children save and spend. But one financial area parents aren't actively leading by example is in donations to charity, according to a survey released by the Northwestern Mutual Foundation's financial literacy Web site, Themint.org.

When asked, "Do you know what organizations or causes your family donates money or time to?" most children 17 and younger said either, "I'm not aware of their giving at all" or "I know my parents give back, but I'm not sure how or to whom." Only 23 percent said, "My parents talk about the organizations and causes they support."

If parents don't discuss their charitable intentions with their children, a valuable learning opportunity is lost. The same is true for professional advisors and working with clients. Planning how to give is just as important as the planning that goes into saving, spending and investing.

Tips for modeling your charitable outlook
This is a perfect time for you as a parent and Professional Advisor to demonstrate how you're modeling and explaining charitable giving to your kids as well as your clients.

Engaging children and clients in financial matters doesn't have to be complicated; there are many simple things you can do. For example, you might consider the following. Also describe to your clients how you are doing this with your family. Stories are very powerful teaching tools.

* Involve kids in conversations about your charitable giving. Develop giving goals as a family. Choose a charity to financially support together. Model - and explain - how the family will budget to meet its giving goal.

* Show them that money isn't just for spending. Help kids start a four-bank system with compartments for saving, spending, investing and giving.

* Encourage children to develop realistic personal giving goals to support a cause in which they believe.

* Add fun into the process. For example, if your family decides to use its giving budget to buy toys for a program that distributes presents to disadvantaged children during the holidays, involve your children in the shopping for those toys.

* Explain to teens the concept of tax benefits related to charitable contributions to organizations such as The Salvation Army or your Church.

People are taught about the importance of giving. I believe that is one of the most lasting legacies you can provide.If you are now out of excuses not to get your estate planning in place or up to date, contact www.RossEstatePlanning.com

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Social Security Program Changes for 2011

The Social Security program is undergoing some changes in 2011 that will affect just about everyone – current retirees, those retiring soon and American workers.  Here’s what you need to know about these changes, from a recent U.S. News Money report:

Lower Taxes

For 2011 only, Social Security taxes will drop from 6.2 percent to 4.2 percent for those with taxable wages of less than $106,800 per year.  For the self-employed, the tax rate drops from 12.4 percent to 10.4 percent in 2012.

Retirement

Paper checks stop after May 1, 2011. Anyone applying for Social Security benefits after May 1, 2011 will no longer have the option to receive paper checks – you will be able to choose either direct deposit into a bank or credit union account, or have your monthly benefits loaded onto a prepaid Direct Express Debit MasterCard.  For those retirees who already receive their benefits via a paper check, that service will stop on March 1, 2013 and you will be able to choose between direct deposit or debit card.  This is estimated to save the system over $1 billion in the next ten years.

No more retroactive benefit suspensions. Beginning this year, retirees will no longer be able to retroactively suspend benefits and pay back monies already received to receive higher payments going forward.  You will still be able to temporarily suspend benefits and restart them later – however, you will only be allowed to suspend benefits for the months you did not receive a payment or for future benefits beginning with the month in which you made the request.

Free loan option discontinued. Starting in 2011, individuals are no longer allowed to apply for benefits at age 62, pay back those benefits at age 70 and then reclaim benefits at a higher rate due to delayed claiming.  The new rules are that you can only withdraw an application for benefits within 12 months of your first payment, and you are allowed only one withdrawal per lifetime.

For more information on effective retirement and estate planning, contact our Ross Estate Planning estate planning attorney.

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