Estate Planning and Legacy Law Center, PLC

Financial Planning. Tax Planning. Legacy Planning. Estate Planning

Most folks have at least heard of an estate plan. But fewer realize that a simple will is not enough to prepare for your future. In fact, a combination of plans – financial, tax, legacy, and estate – are vital to your financial well-being and protection of your assets and family. All of these plans are closely linked, affecting one another but also serving different purposes.

 

Different Plans for Life Success

 

Contrary to popular belief, in order to get to where you want to go in life you need multiple plans, each intended for a specific area of your life.

 

Financial plan: The purpose of a financial plan is to grow your wealth. It defines your goals and objectives, determines what choices you need to make to achieve them, and creates a checklist so that you can meet your goals. Financial plans focus on sustaining your cash flow so that you are able to live the life that you want. Your financial plan may also involve saving for short and long term goals. In addition to investments and insurance, you may also take advantage of any benefits from your employer, including retirement fund contribution matching and group life insurance. Through a financial plan, you can also put together the necessary foundation so that your family is financially prepared in the event of an emergency.

 

Tax plan: Tax planning is analyzing your financial situation through a tax lens. Specifically, the purpose of tax planning is to make sure you are taking advantage of all opportunities to minimize your tax bill. For example, you may contribute to retirement plans or decide to sell or buy certain investments as part of your tax plan. Not surprisingly, tax planning and financial planning are closely intertwined. This is because taxes play a large part of many people’s annual expenses.

 

Estate plan: Estate planning is the process of arranging your legal affairs so people you trust are authorized to make decisions for you when you can’t and so that your assets are distributed to the beneficiaries you choose upon your death. Generally, an estate plan includes several legal strategies that protect your wealth and loved ones.  It will also ensure that someone you trust can help you if you can’t make your own decisions. This is one of the most important plans a person can create to ensure their final property and health care wishes are followed and that the loved ones left behind are provided for in their absence.

 

Legacy plan: A legacy plan is just what it sounds like — a plan to proactively create and take control of the legacy that you will leave behind. Legacies are built and a plan can help you accomplish this. Without a legacy plan, you may drift through your life reacting to circumstances as they arise without intentionally thinking about them. You may also miss opportunities to share meaningful lessons or values with your loved ones. A legacy plan enables you to consciously shape how you will be remembered after you die. This could include charitable giving, sharing family history, as well as conveying moral and spiritual values.

 

Bringing it All Together

 

It is important to have several advisors to help you properly craft your financial, tax, legacy, and estate plans for your life and beyond. An attorney’s role is to create and oversee the legal structure that serves as the vessel through which your plans achieve your goals. A wealth or financial advisor’s role is to handle the financial planning aspects to make sure you are on track to meet your goals. An accountant integrates tax planning through careful analysis of the latest tax laws applicable to your particular situation. Your clergy or spiritual advisor can provide you help in crafting your legacy plan. In short, not only should you have all of these plans, but you should also consult with professionals to help you create and execute them successfully. Give us a call to look at everything to be sure you have covered all of your bases.

Protecting Your Children’s Inheritance When You are Divorced

Consider this story. Beth’s divorce from her husband was recently finalized. Her most valuable assets are her retirement plan at work and her life insurance policy. She updated the beneficiary designations on both to be her two minor children. She did not want her ex-husband to receive the money.

 

Beth passes away one year after her divorce. Her children are still minors, so the retirement plan and insurance company require an adult to be appointed to receive the inheritance Beth left behind. Who does the court presumptively look to serve as the caretaker of this money? Beth’s ex-husband who is now the only living parent of the children. (In some states, this caretaker of the money is called a guardian, whereas in others it is the conservator. The title does not matter as much as the role, which is to manage the funds on behalf of a minor, since the minor is not legally able to handle significant assets or money.)

 

Sadly, stories like Beth’s are all too familiar for the loved ones of divorced people who do not make effective use of the estate planning tools. Naming a beneficiary for retirement benefits or life insurance, or having a will can be a good start. However, the complexities of relationships, post-divorce, often render these basic tools inadequate. Luckily, there is a way to protect and control your children’s inheritance fully.

 

Enter the Trust

A trust allows you to coordinate and control your estate in a way that no other tool can. For those who are not yet familiar, a trust is a legal arrangement for managing your property while you are alive and quickly passing it at your death. There are a few key players in the trust. First, there is the person who created the trust, often called the Trustmaker, Grantor, or Settlor (this is you). Second, there’s the Trustee who manages the assets owned by the trust (usually you during your life and then anyone you select when you are no longer able to manage the assets). Finally, the Beneficiaries are the people who receive the benefit of the trust (usually you during your life, and then typically children or anyone else you choose).

 

How a Trust Protects Your Children’s Inheritance after a Divorce

A trust protects your children’s inheritance in a few distinct ways:

  1. Since you select the Trustee, you can choose someone other than your ex-spouse to manage the assets. In fact, you can even state that the ex-spouse can never be a Trustee, if you wish. If Beth had a trust, she could have named her brother to be Trustee after her death. Her brother (rather than her ex-husband) would then be in charge of the children’s inheritance.
  2. Since you select the Beneficiaries, you can determine how the trust assets can be used for them. You may have long-term goals for your beneficiaries, such as college, purchasing of a first home, or starting a business. When you share your intent, your Trustee can invest the assets appropriately and ensure your legacy is used the way you want, rather than the assets being potentially wasted or used in a thoughtless way. If Beth had a trust, she could have instructed how she wanted the inheritance used, rather than leaving it to the whims of a court and her ex-husband.
  3. A fully funded trust avoids probate, so your children do not have to deal with the cost, publicity, and delay that is all-too-common in probate cases. Although “plain” beneficiary designations, like the one that Beth used, also avoid probate, they may still open the door for a guardianship or conservatorship court case, especially when your children are minors. A fully funded trust avoids these guardianship and conservatorship cases. This means more money for your intended beneficiaries and less for the lawyers and courts.

 

If you are divorced, it is essential to make sure your plan works precisely the way you want. Every situation is unique, but we are here to help design a plan that achieves your goals and works for your family. Give us a call today.

 

Not Married? You’re not alone - but you still need a plan.

Approximately half of America’s population over the age of 16 is unmarried. While much of the discussion involving estate planning focuses on married couples, this topic is just as important for a single person. In fact, many times it is even more important that a single person have a well-coordinated estate plan. This is because the default laws governing estates often work poorly for people without a spouse and may not adequately provide for a significant other or unmarried partner. Having a cohesive and well-drafted estate plan will ensure that you protect and provide for those you truly care about upon your death.

Evolving Estate Planning
It is important to understand that your estate plan can change over time. You may eventually experience life changes like getting married, having children, or buying your first home that will necessitate changes to your estate plan. Although life is constantly changing, it is best to get in the driver’s seat early when it comes to estate planning.

If you die without a will — referred to as intestate — all of your possessions will be distributed according to the default laws of your state. While most state laws have a married person’s assets go to their surviving spouse and children, the same is not true for unmarried individuals. Generally, state law provides that a single person’s assets are passed on to their next of kin. This includes children, parents, and siblings. Noticeably absent for many unmarried people are provisions providing for a long-term boyfriend or girlfriend. And, if there are no surviving close relatives, the assets will likely go to the state. To avoid the state dictating what happens to your assets, it is vital that you have a properly drafted estate plan put together.

As an Unmarried Person, How You Own Things Is Very Important
There is an increasing number of couples that are not getting married, and other individuals who are deciding to remain single. For this group, estate planning is important because taxes and other financial benefits tend to favor those who have tied the knot. It also brings up the need to be very careful about how assets are titled.

How your assets are titled and how the beneficiary designations are prepared will impact how your assets will be distributed upon your passing. The most common ways to hold title to property is tenants in common (TIC) and joint tenants with rights of survivorship (JTWROS). Property that is held as TIC means that each owner owns an interest in the property. At the death of one owner, that interest is transferred according to his or her estate plan, or intestate succession if there is no estate planning. This is not an ideal way for unmarried couples to own property because at the death of one of them, the other person will end up as joint owner with the deceased’s next of kin. JTWROS is one option for unmarried couples because when one owner dies, the property automatically transfers to the surviving owner. There are several other planning strategies that can be beneficial for unmarried individuals — involving tax benefits, retirement plans, wills and trusts, and healthcare powers of attorney — if the right estate plan is carefully crafted.

Speak to an Estate Planning Attorney
If you do not have an estate plan yet, you should contact a knowledgeable estate planning attorney today. Whether you are married, single, or cohabiting with a partner, these professionals can help you craft a comprehensive financial plan that is tailored to your personal situation and assists you in protecting those you care for the most. Give us a call today at 407-647-PLAN so that we can help!

Five Surprisingly Common Planning Mistakes Baby Boomers are Making in Droves

Baby boomers – the first generation tasked with the responsibility of planning for and funding their golden years. This generation, which includes those born between 1946 and 1964, have entered and continue to enter into retirement. As they make this financial transition into retirement, many are learning that they have made some of the most typical retirement mistakes.

But, even if you’ve made a financial mistake or two, there’s still time to avoid these five surprisingly common planning mistakes baby boomers are making in droves.

Mistake #1: Believing Estate Planning is Only for the Wealthy: While baby boomers are not the only ones guilty of this mistake, the common misconception is that only the ultra-rich need to have an estate plan prepared. By some reports, about half of Americans between the ages of 55 and 64 do not even have a will. Because estate planning encompasses not only protection of your assets (regardless of how much you’ve accumulated), but also your healthcare choices, the lack of planning can leave you in a dire situation should any medical issues arise.

Mistake #2: Checklist Mentality: For many, estate planning is just the preparation of legal documents. Once the documents are signed, the client crosses off the item from his or her to-do list and moves on. But, your circumstances may (and usually will) change. And the likelihood of this happening increases the longer time goes by. To ensure your estate planning objectives are carried out, you should update your estate plan every time a major (or minor) life change happens, such as retirement.

Mistake #3: Not Completing Your Estate Planning Homework: Just because the estate planning documents have been signed does not necessarily mean that the planning is complete. It is important that any assets that need to be retitled are done so as soon as possible, before you forget. If the ownership or designations on financial accounts and property do not align with your estate planning strategy, there can be major problems in the future. Improper titling of financial accounts or property can result in an unexpected or undesirable distribution. This can happen because you may make one plan through your will or trust, but the ultimate determination of who inherits will rely on the ownership or beneficiary designation of those assets upon your death.

Mistake #4: Leaving Out Little (And Not So Little) Things: It is important to consider all forms of property, not just the high-value assets when putting together an estate plan. Some of the most commonly overlooked assets include digital assets and family pets. If not expressly addressed in your estate plan, your family may end up fighting over valuable assets, abandoning those they deem worthless, or not even realizing certain assets existed.

Mistake #5: Not Preparing for Life Events & Emergencies: No one has a crystal ball. However, with proper estate planning, you may be able to weather the storm brought on by some of life’s unexpected events or emergencies. With long term care costs increasing year after year, planning for the future possibility of a nursing home can save you money and reduce worry if the time comes.

Estate Planning Help

Although many baby boomers have made these mistakes, you do not have to be one of them. Consult with us to learn about estate planning options and to make sure you and your family are protected from these common mistakes.

Four Reasons Why Estate Planning Isn’t Just for the Top 1 Percent  

There is a common misconception that estate plans are only for the ultra-rich – the top 1 percent, 10%, 20%, or some other arbitrary determination of “enough” money.  In reality, nothing could be further from the truth. People at all income and wealth levels can benefit from a comprehensive estate plan. Sadly, many have not sat down to put their legal house in order.

 

According to a 2016 Gallup News Poll more than half of all Americans do not have a will, let alone a comprehensive estate plan. These same results were identified by WealthCounsel in its Estate Planning Awareness Survey. Gallup noted that 44 percent of people surveyed in 2016 had a will place, compared to 51 percent in 2005 and 48 percent in 1990.  Also, over the years, there appears to be a trend of fewer people even thinking about estate planning.

 

When it comes to estate planning, the sooner you start the better. Below are four reasons why everyone – no matter what income or wealth level – can benefit from a comprehensive estate plan:

 

Forward Thinking Family Goals: Proper estate planning can accomplish many things. The first step is to ask what your goals are. They may include caring for a minor child, an elderly parent, a disabled relative, or distributing real and personal property to individuals who will appreciate and maintain these assets prudently.  Understanding what your family wants and needs are for the future is a great starting point for any estate plan. If you can sit down and spend time planning your vacation, you can do the same for your estate. Your future self, and your loved ones, will thank you.
Financial Confidence Now and After You Are Gone: One immediate benefit of having a finished estate plan in place is that you will likely feel in control of your finances, possibly for the first time ever. Many people experience a new sense of discipline in maintaining their finances which can help with saving for retirement, a big purchase, or other goal.  In addition to the personal benefit of financial control, an estate plan allows you to dictate exactly how and when your heirs receive an inheritance. This is particularly important for minor heir or those who need additional guidance to manage their inheritance, like a disabled child.
Identify Risks: An important aspect of a good estate plan is to mitigate against future and current risks. One example is becoming disabled and unable to support your family. Another is the possibility of dying early. Through an estate plan you can chose who will be in control of your personal assets, instead of the court appointing a legal guardian who will cost money and be a distraction for your family.  While contemplating these types of risks is never fun, preparing ahead of time ensures your loved ones will be prepared if an unfortunate tragedy occurs.
To Maintain Your Privacy: In the absence of an fully funded, trust-based estate plan, a list one’s assets are available for public view upon death. This occurs when a probate court needs to step in. Probate is the legal process by which a court administers the deceased person’s estate. A solid estate plan should generally avoid the need for involvement by the probate court, so your family’s privacy can be maintained.
 

The Bottom Line: Seek Professional Advice

There are numerous benefits to working with a professional team when it comes to estate planning. Estate planning attorneys, financial advisor, insurance agents, and others  have a broader and deeper knowledge of money management, financial implications, and the law. When you work with a qualified team to implement an estate plan you can rest easy knowing your family will be taken care of no matter what happens in the future.

How to Share Family History and Heirlooms with Your Estate Plan

The best time to share your family history with loved ones is right now, before the memories are forgotten. The coming holiday season is a great opportunity to reminisce because you’ll probably have your loved ones nearby.

While you can always pull aside children and grandchildren for a chat about family history, did you know you may also be able to use a personal property memorandum in your estate plan to pass along special memories and stories about specific items that are meaningful to you and connect your family with the past?

What Is a Personal Property Memorandum?

Many states allow you to include a “personal property memorandum” in your estate plan. This supplemental document, specifically referenced in your will or your living trust, lets you describe which personal property items you wish to leave to heirs, without having to call your lawyer and arrange for a meeting. You can handwrite or type this document, but it must be signed and dated to be valid. In conjunction with a will or living trust, a personal property memorandum can provide a roadmap for your executor regarding the distribution of specified items to your beneficiaries.

One important feature of a personal property memorandum is that you can change or update it whenever you like without the assistance of an attorney or notary. This freedom can be beneficial to you, because although you can also change your will as often as you like (and you absolutely should update it periodically to make sure it still reflects your wishes!), updating your will or living trust does require a visit to the estate planner’s office.

Another great reason to have a personal property memorandum in addition to your will and living trust is that your personal possessions likely change more frequently than other assets. For example, you probably add items to your closet more often than you add vehicles to your driveway.

Do You Own Rental Property?

How Proactive, Comprehensive Estate Planning Can Help

A comprehensive estate plan should address all of your assets. For most people, an estate plan must include three common categories: (1) your home; (2) financial accounts, like your checking and savings account; and (3) personal property. Other types of assets – such as life insurance, retirement funds, and annuities – should also be considered as part of your estate plan.

 

If you own rental property, however, your estate plan will be more complicated because there are some unique considerations.

 

Rental Property & Estate Plans

It is no surprise that one of the risks of being a landlord of commercial or residential property is the threat of lawsuits. An injured guest or tenant, a claim under the landlord-tenant act, or a lease dispute can all end up in the courtroom. However, a well thought out rental property plan and estate plan can hedge against this risk.

 

Protecting Your Assets: A prudent landlord purchases adequate insurance coverage as the first line of defense. Sometimes, however, the insurance policy’s limit is not sufficient to cover damage awarded by a court. When this happens, the next place the prevailing party looks to for satisfaction of judgment is the property owner’s personal assets, which leads us to the next layer of protection.

 

Using a Business Entity as Protection: Owning property through a business entity, like a limited liability company (LLC), can protect personal assets against seizure.  That being said, merely filing paperwork to create an LLC isn’t enough. The LLC must be treated as a true business entity and all reports, filings, bank accounts, and other formalities must be met at all times in order to benefit from the liability protection of the business entity. Additionally, when meshing your rental property ownership with your estate plan, you must consider who can manage your assets if you’re unable to do so, our next consideration.

 

Who Is Managing Your Assets: Another factor to consider is the trustee who manages the living trust. A trustee bears the responsibility of managing the property owned by a trust for the benefit of the trust beneficiaries. The exact duties of a trustee may vary depending on what assets are owned by the trust and the trust’s terms. While income from the rental property made you financially successful, many institutional trustees – or someone outside of your circle of family and friends – will often liquidate assets and invest the funds. This result may or may not be what you want done with your assets. For this reason, using an LLC to organize your rental property holdings and have the trustee simply collect the net income from the overall operation can be a way to ensure your wealth remains invested in the rental property that made you successful.

Tax Advantages Through 1031: While many think of estate planning and LLCs as strategies to save on death taxes and provide for heirs, we can help with much more. A 1031 exchange is a vehicle to defer taxes from the sale of rental property. The rules to qualify are complex, but can save enormous amounts of income tax, depending on your situation. We can help by making sure that your trust, powers of attorney, and LLC allow your family to take advantage of this tax-saving law if you are incapacitated and unable to manage your own affairs.

Bottom Line

You’ve likely worked hard over the years to build and acquire your rental property, along with your other assets. Make sure that your estate plan takes every one of your assets into account so that you and your family receive the most benefits and protection.

Does My Estate Plan Need to Include My Vacation Property?

If you own a vacation home, timeshare, investment property, or any other asset outside of the state where you are domiciled you must make sure it’s included in your estate plan. If you fail to include these in your estate plan, or fail to have an estate plan at all, your heirs will encounter issues, and usually the expense and hassle of court costs, when inheriting these assets.

Because state laws vary, your principal residence may even be divided one way in your state home while other properties – such as vacation homes, time shares, or other pieces of out-of-state land – can end up divided completely differently. Of course, having a comprehensive estate plan puts you in control and lets you determine who will receive your property, regardless of where it’s located.

Avoiding Unnecessary Probate

When property is located in a different state than where the deceased person was domiciled, your family may need to file a second probate case, referred to as an ancillary estate. Typically a local attorney must handle the ancillary estate, which adds more cost, time, and hassle for your family to settle your affairs. For example, if you died as a resident of California but owned property in Montana as well, you might have an ancillary probate in Montana for the property located there.

Probate is the legal process that is used to change title of property upon their passing, whether the deceased had a will or not. Each state has their own probate rules, making it fairly complex for families that inherit property in multiple states. It is important to know that while personal property may be probated in the state where the decedent is domiciled, real property must be probated in the state or country where it is located.

The need for ancillary probate can be avoided, however, through proper estate planning. Specifically, if the decedent transfers the property to his or her revocable trust before death, ancillary probate can be avoided. Of course, there are several ways to avoid the costs, delays, and headaches of probate other than a trust, but each alternative has downsides. One way is the title the property jointly with your spouse or, alternatively, jointly with another individual. The property must be titled in a particular manner to avoid probate so that it automatically goes to the survivor. But this can make refinancing difficult, say if you name a child as a joint owner, and can also cause unnecessary taxes to be due.  The result of using a revocable trust will likely be a saving of money, time, and hassles for your heirs.

Bottom Line

Intestacy laws can be complicated because they vary from state to state. At the same time, a well thought out estate plan avoids unnecessary probate costs, in every state where you own property. With the help of a knowledgeable estate attorney, you can successfully avoid unnecessary complication and make settling your affairs as easy as possible for your heirs.

Remember to tell your estate planning advisor about everything that you own – no matter how small in value or where it is located. This is because in order to fully protect your family and assets, all of your property (real and personal) must be included. If you have any questions about ancillary probate, or any other estate planning issues, contact us today.

How Long Should You Keep Important Documents?

In a society dominated by paperwork, the question of how long to hold on to important documents has been baffling for most people. We especially worry about documents of a financial or personally identifying nature. People who worry about losing something important sometimes hoard everything; others who worry about things like identity theft are too quick to shred documents. Most of us, however, lie somewhere between these two extremes: Simply and utterly confused about what to keep and how long to keep it.

You do need to save certain documents longer than others, and— for financial and estate planning purposes—these documents should be organized and accessible. Some documents should be kept forever, others for shorter periods of time—yet many documents aren’t actually important enough to save. While it might seem like a good idea to hang on to everything, the resulting clutter might make it difficult to locate important papers amid all the unimportant ones. And, even with digital documents, you can still run out of space.

Let’s help unravel this confusion by offering some guidelines on which documents should be kept, and for how long.

Keep These Documents for Three Months or Less:

ATM receipts
Credit card receipts
Receipts for small or everyday purchase
Utility bills
Unless you have a specific issue (such as company reimbursement practices or business deductions on your income tax return), after 1-3 months, these receipts become inconsequential and just add to the clutter in your home or office. Your bank statements will reflect ATM withdrawals, and your bank and credit card statements and/or cancelled checks can be proof of payment for utilities and other regular purchases.

Keep These Documents for One Year:

Monthly mortgage statements—Your annual tax statements will eventually make these redundant.
Paycheck stubs—Once you’ve reconciled these stubs with your annual W-2, you no longer need them.
Checkbook ledgers (if you use them)—Many people today keep ledgers online using an accounting software. If you do the old-fashioned handwritten check ledger, you won’t need it longer than a year.
Insurance statements and records—Once you receive a current policy renewal or statement, the old one becomes obsolete.
Investment account statements–In general, store these for at least one year. Include your monthly statements as well as any trade confirmations.
Undisputed medical bills and receipts—Keep these documents if you’re haggling with insurance or have a personal injury case in the works, keep these as evidence. Otherwise, you can get rid of them after a year.
Keep These Documents for at Least Seven Years:

W-2 and 1099 forms—These documents prove your income for loans and possible tax audits.
All tax-related receipts—These documents justify your tax deductions if the IRS wants proof of them.
Cancelled checks for tax, business, mortgage and home improvement purposes—Some people like to save all their cancelled checks, but if you want to minimize, go through these checks once a year and shred any that are irrelevant while keeping those that relate to your tax, business, mortgage, or home improvements.
Bank statements–Keep them for at least one year, either in printed form or saved in electronic form. They can be useful when identifying potential fraud, identity theft or other anomalies with your account. As with all financial or legal documents that have personally identifiable information, always shred paper copies before discarding.
Disability records and unemployment income stubs—It’s a good idea to keep paperwork related to income you receive directly from the government.
Keep These Documents Forever/Indefinitely:

Income tax returns—Some suggest your returns can be shredded after seven years along with your tax preparation documents, but we recommend holding onto the returns themselves.
Personal identification documents—These include birth certificates, Social Security cards, current and outdated passports, etc.
Legal documents—These include marriage and divorce certificates, lawsuit settlements, etc.
All receipts and documents related to your home or real estate holdings—These include mortgage documents, title/deeds, home improvement receipts and records related to buying and/or selling the property (including commissions and fees). Keep these documents for as long as you own the property, plus a minimum of six years after selling.
 

Vehicle titles and/or related loan documentation–Hold these for at least three years from the date the transaction is finalized. Many people keep them for 10 years or longer, however, because they can be helpful even long after the transaction is done if there are any questions.
 

Receipts for all major purchases—Keep these receipts for warranty purposes and to show value for possible insurance claims. You can shred these when you sell.
Annual investment and retirement account statements–Your quarterly statements should be held until the annual statement arrives. At that point, cross-check the quarterly statements with the annual one. If everything matches, you can shred the quarter statements. Keep the annual records until the account is closed.
 

Education records—These include high school and college transcripts, as well as diplomas and degrees.
All relevant financial planning records—These documents include wills, living wills, trust documents, pension plan documents, power of attorney designation, medical and burial information, etc.
Electronic versus Physical Storage

In today’s digital age, many people choose to save important documents electronically by scanning them and saving them to a hard drive or into a cloud-based storage service, like Dropbox, Box, Google Drive, or iCloud. This strategy is an excellent one for saving space and reducing clutter. If you choose to do so, we recommend backing up these documents in several places with at least one backup offsite (for example, if you use a secure cloud-based storage, make sure you have a backup on a second service or use a hard drive stored in a safe deposit box). However, you should always keep a physical copy of the following items, preferably stored securely in a safe deposit box:

Birth certificates
Social Security cards
Passports and other legal IDs
Marriage license
Property deeds and related mortgage documents
Vehicle titles and related loan documents
Pension plan documentation
Insurance policies
Financial planning documents
There may come a day when we can go 100% paper-free, but we’re not there yet.

Final Tips about Organization

When figuring out which documents to keep and which to shred—as well as how long to keep documents—a good organization system will help keep things from devolving into chaos and clutter. This system can be as simple as a filing system with folders labeled according to “expiration date” (i.e., 3 months, one year, etc.) or an online filing system with similar labels. Revisit your paperwork regularly to keep things up to date.

Keeping up with documentation can be a challenge, even for the most diligent families, and even with the most organized systems. For financial planning purposes, we can help you set up a personalized legal document plan to help you stay on top of your planning needs. Contact us for more information.

How Does an IRA Fit Into Your Estate Plan?

When you think of IRAs, you probably think of retirement. But what happens to your IRA money after you’re gone? The answer depends on how you go about creating your estate plan and selecting beneficiaries, and you might be surprised to find out that your money could end up with the wrong people or cause an unexpected tax bill if you don’t take action ahead of time.

 

What your IRA means for your estate plan

Individual retirement accounts (IRAs) are often one of the biggest financial accounts you invest in over the course of your lifetime. When you’re working on your trust, will, and other documents contained in your estate plan, you have to consider all the “big stuff” like your IRA, your house, and your small business, to name a few. But unlike the way we may use some trusts for your family, IRAs have limited lifetime planning opportunities. 

 

IRAs are also subject to income tax (yes – even one you inherit), even though the estate tax or death tax only applies to large estates over $5.49 million. Leaving your IRA to a spouse is a common choice, but you can’t assume that your IRA will automatically be distributed to your surviving spouse. Your spouse must be explicitly named as its beneficiary through a proper beneficiary form.

 

Common IRA mistakes

One of the most common mistakes people make is letting their IRA beneficiary forms become out of date after a divorce, the birth of a child or grandchild, or another major life event that would alter their choice of beneficiary.

 

Another misstep to avoid is naming your own estate as the beneficiary of your IRA. If you name a beneficiary such as your spouse or child, they’ll be in the position to make that money grow into even more wealth over time by using the so-called “stretch out” feature of these accounts. If your own estate is the beneficiary, the money will be passed onto your loved ones in as little as five years (and possibly even faster), resulting in greatly accelerated (and often higher) taxation and a halt to the IRA’s potential growth over time. A bad result all around.

 

If you decide to leave your IRA to your minor children, you can cause a less-than-ideal situation by forgetting to appoint a guardian to oversee the IRA until your kids are old enough to inherit the IRA. Without a guardian, IRAs left to underage children can end up going to exes or other people you might not wish to share your wealth with. Better than a guardian, you can create an IRA trust to receive the IRA distributions, providing long-term financial support for your children or grandchildren and protection against meddlesome exes or others you don’t want to be involved in your children’s inheritance.

 

IRAs and estate and income taxes

It’s important to sit down with an estate planning attorney to determine how your IRA will be taxed and plan accordingly. For those with large estates, a life insurance policy and life insurance trust could be taken out to offset the cost of those estate taxes for your beneficiary. Remember, in addition to estate taxes for those with a large estate, your IRA distribution will also trigger an income tax for your recipient, regardless of the size of your estate. Roth IRAs are an exception to the income tax for beneficiaries. Whether a Roth IRA makes sense is something you can explore with us, your tax advisor, and your financial planner. Like many legal, tax, and financial strategies there are no one-size-fits-all solutions.

 

Because of the estate and income taxes that occur when IRAs are passed on to beneficiaries, they’re an excellent way to include some charitable giving as part of your estate plan. If you donate your IRA value to a charity, you’ll have a charitable contribution deduction as well as the ability to bypass loss of the IRAs value through income tax. If you are interested in benefiting your church 

or another charitable goal, it’s always an excellent idea to bring this up with us as your estate planning attorney and with your financial advisor as well, so we can help you build a plan that lets you give back.

 

Turning even a modest IRA into a huge advantage for your family

One way to make the most of an inherited IRA is to take a stretch-out approach. This strategy lets your beneficiary stretch the length of time over which they’ll be collecting money from the IRA, giving it more time to accrue growth without income taxes eating away at it. When this is paired with a retirement trust, the result can be a huge, long-term inheritance for your family, even if your IRA is only a modest amount. This is just one of several ways you can work with estate planning attorneys to make sure your loved ones get the most out of your hard-earned wealth for years to come.

 

Even though passing your IRA to your spouse or onto the next generation may seem relatively straightforward, there are plenty of pitfalls along the way without the guidance of an expert. Get in touch today, and we’ll review your current IRA beneficiary forms to make sure everything is up to date and works to achieve your goals.