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Wisconsin IRA

Monday, December 21, 2015

Charitable IRA Rollover is now permanent

On December 18, 2015 legislation was signed into law by the President that makes the IRA rollover permanent and retroactive to December 31, 2014. Gifts transferred directly from a donor's IRA to charity at any point during 2015 will qualify as a rollover gift.  This law is also permanent, meaning future gifts will also be treated in the same way.

To recap, below is how the IRA charitable rollover works:

1. Donor must be at least 70 ½
2. Gift must come from an IRA (not a TSA or 401(k))
3. Gift must be a direct transfer from the IRA to a qualified charity
4. $100,000 aggregate limit for all 2015 direct IRA transfers to charity
5. Gifts will be exempt of federal income taxes and satisfy minimum distribution requirements
6. Transfer must take place by December 31, 2015 for qualifying 2015 IRA charitable rollover gifts

Bob


Monday, October 20, 2014

14 Things to do Before the End of 2014

The end of the year will be here before we know it, but there is still time to get some major estate planning goals accomplished. Here are ten things to do before the end of 2014.
 
1. Get Organized.

Would your family:
a.         Be able to find your accountant, lawyer financial advisor or insurance agent?
b.         Be able to determine if there is an advance care directive, a Health Care Power of        Attorney, or Financial Power of Attorney, and where to find them?
c.         Have the necessary passwords for your on line activities?
d.         Create an inventory of what you own and what you owe: A comprehensive list of your assets and debts, including account numbers and contact information,  stored in a convenient location.

2. Update health care documents. Everyone over the age of 18 needs a Durable Power of Attorney for Heath Care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and 2) HIPPA Authorizations, which give written consent for doctors to discuss your medical situation with others, including family members. Give copies to your agents and your doctors. Make sure they are stored in a convenient location readily accessible by your family. Hint: Not in your Safety Deposit box.

3.  Prepare a Financial Power of Attorney. Who do you want to be in control of your finances? Without a written Financial Power of Attorney, the Court will be in charge of your affairs if you are incapacitated. Do it right. A power of attorney needs to be well-thought out so it is effective when you need it most.

4. Have your estate planning done. Set the end of the year as your deadline to finally get this completed. Stop procrastinating. If it’s because you don't have an attorney, ask friends and acquaintances for referrals. If it’s because you aren’t sure who you want to be the guardian for your minor children or who you want to be your trustee or how to divide your estate, your attorney can help you decide. (You can always change your mind later. Don’t let these decisions keep you from putting a plan in place now).

5. Review and update your existing estate plan. Personal and financial circumstances will change throughout your lifetime, and your plan needs to change with them. Revisions should be made any time there are changes in your family (birth, death, marriage, divorce, remarriage), your finances, tax laws, or if a trustee or executor can no longer serve. Now is a perfect time to do this; if there are changes you want to share with family members, you can do that when they are home for the holidays. 
 
6.  Review/update beneficiary designations. This is especially important if your beneficiary has died or if you are divorced. If your beneficiary is incapacitated or is a minor, setting up a trust for this person and naming the trust as beneficiary will prevent the court from taking control of the proceeds.

7. Make tax-free gifts. Under current federal law, you can give up to $14,000 to as many people as you wish each year. This is a great way to reduce the size of your estate (and potentially save estate taxes) over time. Charitable gifts are unlimited. So are gifts for tuition and medical expenses, if you give directly to the institution.
 
8. Review/update your insurance. Check the amount of your life insurance coverage and see if it meets your family’s current needs. Consider getting long-term care insurance to help pay for the costs of long-term care (and preserve your assets for your family) in the event you and/or your spouse should need it due to illness or injury.
 
9. Talk to your children about your estate plan. You don’t have to show them bank and financial statements, but you can talk in general terms about what you are planning and why. The more they understand it, the more likely they are too readily accept it—and that will help to avoid discord after you are gone. You can also talk to them about your values and the opportunities that money can provide. Even better, show your values by doing charitable work together —the holidays are an excellent time for families to do this.
 
10. Get basic documents for your unmarried kids who are over 18. It’s a mild shock when we learn we can’t see our college kids’ grades without their permission, even though we pay the tuition. It can be much worse if they become ill. Adults (18 and over) need to have a Durable Power of Attorney for Health Care and HIPPA Authorization so you can act on their behalf in a medical emergency. And, while you’re at it, go ahead and have your attorney prepare a Simple Will and Durable Power of Attorney. Hopefully, these will not be needed but if an event does occur, you will be glad you have them.
 
11. Get Your Free Credit Report. We are all entitled to one free credit report every year at  https://www.annualcreditreport.com/index.action. IF you haven't gotten yours yet, make sure you do this before the end of the year.
 
12. Make Your Contributions to your Retirement Plan. Now is the time to get those contributions into your plan. If you have not contributed enough to get your employers full match change your contribution amount in your remaining paychecks. If you have an IRA or better a Roth IRA make your contributions. Think about a ROTH IRA conversion. See your tax advisor now to discuss this planning opportunity.
 
13. Make Your Charitable Contributions.  Donate to your favorite Charity. Some of the best donations are appreciated assets like stock. You also will want to clean up your clutter and give those gently used items to Goodwill.
 
14. Get Tax Ready. Make an appointment with your tax advisor so you can make adjustments before the end of the year. Get your bills, receipts and income items organized now. Make the upcoming tax season easier on yourself.


Monday, August 11, 2014

Inherited IRA'S are Not Creditor Protected

Over the last few years there have been a number of changes about how the IRS treats inherited IRAs and the necessary provisions if you name a trust as the IRA beneficiary. On June 12th of this year the United States Supreme Court unanimously ruled in  Clark v. Rameker  that inherited IRAs are not afforded the same protections from creditors as regular IRAs.

 I am asking all clients to review the beneficiary designation for their IRAs.

Planning Tip:
First, if you are married your spouse should be the primary beneficiary. This gives the greatest flexibility to “stretch out” the distributions from the IRA, have creditor protection, and get maximum tax deferral.

Second, if you are single the question of who to name as beneficiary is a bit more complicated. The answer depends upon the size of the IRA. If the size of each beneficiary’s IRA share is too small to make use of stretching out distributions over their life expectancy, then you should name them directly, but no creditor protection. If asset protection is a concern, then you would name a trust that you create for their benefit (Castle Trust). 

Third, In the past the Revocable Trust was named as the beneficiary to take advantage of all of the planning built into the Trust. Experience and a change in IRS rules has eliminated this opportunity. The beneficiary form needs to be updated.

Read more: http://www.rossestateplanning.com
See my Article entitled the Six Biggest Beneficiary Designation Mistakes.


Tuesday, July 22, 2014

The New Wisconsin Trust Code.

The new Wisconsin Trust code has gone into effect on July 1, 2014. It has updated  many of the rules and regulations for Trusts. For example:

Revocable Trusts.  Contrary to prior law, the new Code provides that a trust is revocable by the trustmaker (the person who created the trust) unless the trust instrument provides otherwise.  Not only may a trust be revoked by the Trustmaker, but also by a properly authorized agent, such as a guardian, if a Trustmaker is incapacitated.

Modification and Termination of Irrevocable Trusts.  The Code makes it easier to modify or terminate an irrevocable trust.

Decanting Trust Assets.  Subject to certain restrictions that are designed to protect the interests of beneficiaries, the trustee of an irrevocable trust (the “first trust”) may transfer trust assets to the trustee of another trust (the “second trust”), a procedure commonly referred to as “decanting.”  Trustees or beneficiaries might wish to decant the assets of an irrevocable trust to a second trust to (i) change the state law that governs the trust, (ii) change how and when beneficiaries receive distributions, or (iii) modernize an outdated trust document.

 Directing Parties/Splitting up the Duties.  The Code introduces a new concept to Wisconsin trust law by authorizing a trustmaker or a court to appoint “directing parties” who are granted powers to direct the trustee to make investment or distribution decisions.  This allows a trustmaker to divide the traditional duties of a trustee and assign them to other parties.

Trust Protectors.  The Code introduces another concept to Wisconsin trust law, (which has been around for may years in Irrevocable Trusts) by authorizing the appointment of one or more trust protectors.  A "trust protector" is a person who is granted certain powers over the trust, the trustee, or trust property.  Trust protectors are often used to modify terms of the trust for various reasons such as a change in tax laws or changes in circumstances.

Nonjudicial Settlement Agreements.  The Code permits parties interested in a trust to enter into agreements concerning any matter involving the trust without having to take court action.  Such an agreement, called a nonjudicial settlement agreement, becomes part of the terms of the trust.

Creditors' Claims.  In general, the Code preserves current law related to spendthrift provisions in a trust document and the rights of creditors to make claims against a trustmaker’s or beneficiary’s interest in a trust.  The Code also preserves current law that allows a trustee to limit the claims of a creditor of a trustmaker upon the trustmaker's death by providing or publishing notice to the creditors.  Those looking for Wisconsin to join the ranks of states with strong asset protection trust laws will not be disappointed when using Castle Trusts.  The Code makes clear, however, that a beneficiary's use of real or tangible property owned by a trust does not subject the property to the claims of the beneficiary's creditors. A Major change is that the beneficiary can be a sole Trustee and retain creditor Protection.

Certification of Trust.  A third party may rely upon a certification of trust that sets out certain required information including a statement that the trust has not been revoked, modified, or amended. The certification of trust protects the privacy of the trust instrument because it does not need to contain the private distribution provisions of the trust.

Uneconomic Trust. The WTC increases the value of what qualifies as an uneconomic trust from $50,000 to $100,000 or less as indexed for inflation. 

Read more: http://www.rossestateplanning.com


Tuesday, July 15, 2014

American Taxpayer Relief Act (ATRA) changed estate planning.

There is a new paradigm in estate planning.

The new law increases the estate tax exemption to $5.34 million per person and $10.68 million for a married couple.  Portability of the deceased spouse unused exclusion (DSUE) has been made permanent in theory.

Estate planning is now changed for estates above the $5.34 million threshold,

  • For those estates below the exemption more true planning will be the norm.
  • Applicable exclusion amount should not be used to transfer low basis assets,
    • Taxpayers should consider keeping as much as possible in order to obtain a “step-up” in basis for those assets in order to minimize capital gains taxes
  • Income tax considerations are now more important than estate taxes.
    • Can save more in income taxes by getting a basis step-up at death
  • State of Residence
    • Will give rise to very different types of estate planning because several states (19)  have a death tax.
    • You or your heirs may move to one of those states
  • Updating credit shelter trusts to maximize step-up in basis and provide broad flexibility in tax planning upon death of the first spouse should now be a priority for most married couples.  Widows and widowers who are beneficiaries of a credit shelter trust may need to consider distributing assets out of the trust – assuming the trust allows for this  – or decanting the trust to a more flexible trust if it does not.

    Read more: http://www.rossestateplanning.com


    Tuesday, July 8, 2014

    The Estate Planning World has Flipped

     There is a new paradigm in estate planning.

    Three major changes have profoundly affected the estate planning world.

    1.  The 2012 American Taxpayer Relief Act (ATRA) with its increase in the estate tax exemption to over $5,000,000 as the lead game changer. Estate Taxes have been eliminated for most Americans.

    2.  Wisconsin last December passed the new Uniform Trust Code which took effect on July 1, 2014.

    3.  The US Supreme Court Decision in Clark v. Rameker that inherited IRA's are not creditor protected.

    I will give each of these items further discussion in upcoming articles.

    My Recommendation:  All  trusts and estate plans prepared prior to 2012 should be reviewed

    Read more: http://www.rossestateplanning.com


    Sunday, November 25, 2012

    Who Should Be The Beneficiary Of Your IRA?

    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


    Saturday, November 24, 2012

    What to Do with an Inherited IRA

    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.


    Monday, September 24, 2012

    Where Does the Charitable IRA Rollover Stand?

    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.


    Friday, January 29, 2010

    6 Biggest IRA Beneficiary Form Mistakes

    Do you want your heirs to have to chase after their IRA Money? Better make sure you have an up to date beneficiary form. The Supreme Court of the United States decided last year in the case of Kennedy vs DuPont, the ex-wife who was still listed on the beneficiary form gets the money, even though the divorce court ordered  her rights terminated and she signed a waiver.

    So what are the Biggest mistakes:

    1. You cannot find the your IRA Beneficiary Form. The Supreme Court made it clear, the beneficiary form rules. Without the form you are stuck with the default provisions of the plan.

    2. The IRA Beneficiary Form is out of date. Have there been any changes in your life, such as marriage, divorce, a death. Your will cannot change the beneficiary of your plan!

    3. You have not named a backup beneficiary. If you do not name a back up beneficiary in your IRA Beneficiary Form, then  who knows who gets the money.

    4. Naming a minor as a beneficiary. This will result in a trip to the Probate Court and later when the child turns 18 to the Sports Car Dealership. The only question will be what color.

    5. Missing out on the Stretch IRA Opportunity. This can turn a modest IRA into Millions for your beneficiary.

    6. Not providing Creditor Protection for the Beneficiary. The Retirement Benefits Trust is just the solution.


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