If you have given some thought to who should have guardianship over your child you’ve probably realized what a tough decision it is. Picking a person that both you and your spouse can agree on is no easy matter. Here are some tips from Savvy-Parents in their article, “Six Tips for Choosing a Guardian for Your Child”:
If there is one thing in life you can be sure of it is that you don’t know what is going to happen. As a parent making sure you have taken precautions that will take care of your family if you are not able to do so is critical. An article from Savvy-Parents, “Who Is Authorized to Pick Up Your Child in an Emergency?”, discusses the importance of ensuring you have filled about proper documentation like a Standby Guardianship Designation so that your children will have a legal guardian in the event you are unavailable.
Have you thought about who is authorized to pick your child up from school aside from yourself? What about daycare or other extracurricular activities? Your spouse/partner should not be your only answer. Organizations are not legally allowed to release your child to anyone who does not have documented authorization to do so. If both you and your spouse/partner were in an accident, your child would not be allowed to be released to another adult even if it were their grandparent. The police or child protective services might be called, something you would not want your child to go through on top of their parents being injured.
While we all see estate planning as a long-term strategy, which it is, it also can be for short-term items as well. It is easy to focus all your energy on the aspects of your estate plan that are far reaching, like retirements savings and what will happen to your assets after your passing. Yet, what about in those moments before your strategy for the longevity of your assets kicks in? Or more importantly, if you have minor children, what will happen to them in the first few days after your passing? An article from Forbes, “What Is Micro Estate Planning And Do You Need It?” emphasizes the need to consider the short-term plan for your children.
Let’s be real, we all hold onto things we think would be nice to pass onto our kids. We started this tradition even at a young age with toys that we were attached to but had outgrown. Yet, as you set out to plan who gets what in the will, there are 10 things your kids likely do not want. They may be too kind to say as much, so you might want to consider an alternative for those items you have been saving. An article from NextAvenue “Your Top 10 Objects Your Kids Don’t Want” by Elizabeth Stewart, author of ‘No Thanks Mom’, outlines the objects your kids do not want and what you can do with them. [Read more…]
Giving your children, or other heirs, gifts while you are still alive can be a very fulfilling experience: you get to see what they do with their early inheritance. However, many people aren’t sure about the tax implications of gifting. A recent article posted on nj.com, “Gift tax consequences for you and your heirs,” gives readers a general look at gifting and taxes. It should be noted that large estates often incorporate gifting as part of an overall estate plan and should have the guidance of an experienced estate planning attorney. [Read more…]
In 2017, the federal estate tax exemption is $5.49 million. A recent article from CBS Boston, “Our Families: Giving It Away,” explains that if your estate is worth more than that, gifting is a straightforward way to lower your tax exposure while allowing you to enjoy watching your heirs or favorite charities benefit from your generosity. Don’t forget another part of this estate planning strategy: in life or death, married couples have an unlimited gifting privilege called the “annual gift tax exclusion”. [Read more…]
If you’re interested in reducing the taxes your heirs will have to pay, you’re probably concerned about the discussion about tax reform going on in Washington these days. Unfortunately, there’s no way to be certain what, if any, changes will actually occur. In the meantime, your estate planning attorney can help you structure your estate, so that less of it ends up being consumed by taxes. That includes moving funds into non-taxable accounts, including Roth IRAs.
Motley Fool’s recent article, “A Clever Way to Cut Your Heirs’ Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. As the Roth has been open for at least five years prior to your death, the money in that account won’t be subject to federal income taxes. [Read more…]
The holidays and spending time with family typically go hand-in-hand. With that in mind and the holidays quickly approaching, our focus for the upcoming month is about how you can take care of your family through estate planning.
As your family grows and changes, so should your estate plan. The estate planning needs of a young family with small children are different than those for families with aging parents and adult children. Each family is unique and should have a comprehensive estate plan to account for that family’s needs and wishes. [Read more…]
With Grandparents Day approaching on September 10, we celebrate the special relationships between grandparents and their grandchildren. With the cost of a college education continuing to rise exponentially, a 529 plan is generous gift that you can give to your grandchild. You’ll be able to save for your grandchild’s future, get some good tax breaks and maintain control over the account, according to a recent article appearing on nj.com, “529 plan funding for a grandchild. ”The earnings are tax-free, as long as the funds are used for educational expenses.
The recipient grandchild won’t have control over the account or when distributions are made, and the owner can change the beneficiary of the account to a different member of the beneficiary’s family at any time. This can be crucial if the account’s overfunded or not used by the grandchild. The definition of family member is quite broad and includes cousins and spouses of family members. In the event that you need the funds yourself, you could take a distribution.
If you did take a distribution, there’d be a tax owed and a 10% penalty on the earnings portion of the withdrawal since it wouldn’t be used for qualified education expenses. This gives grandparents some safety, if they need access to those funds.
The grandparent owner can also use 529 plan contributions as part of his or her estate plan, because it removes funds from the grandparent’s taxable estate. The contribution is considered a gift subject to the federal gift tax, but there’s an annual gift tax exclusion. It’s currently $14,000 per beneficiary per year, which is not subject to the gift tax.
Some grandparents will also front-load a lump sum of up to five times the annual exclusion amount to each beneficiary. They must then wait five years before the total gift to that same beneficiary would be eligible for the maximum exclusion. Even if the gifts go over the exclusion amount, there is a lifetime exemption amount, which is currently $5.49 million dollars.
Some states don’t have a gift tax on lifetime transfers, but there are those that have an estate tax on estates valued in excess of a specific amount, which should be taken into account when estate planning.
It is important to be aware that you may already have estate planning in effect using the annual gift tax exclusion, with a life insurance trust or family limited partnership as part of your plan. If you’re thinking that someday you may need Medicaid assistance, your state will probably deem any 529 accounts you own to be your own assets. As a result, you’d have to deplete them before qualifying.
Finally, when your grandkids start looking at colleges, make sure to talk about these accounts with your kids. The 529 accounts –including those owned by family members—will be considered as assets belonging to the grandchildren for purposes of determining how much financial aid the school will offer.
Reference: nj.com (May 12, 2017) “529 plan funding for a grandchild”
Qualified retirement plans are designed to encourage people to save for retirement. The most common retirement plans are individual retirement accounts (IRAs) or employer-sponsored plans such as 401(k)s or 403(b)s.
Typically, individuals receive an income tax deduction for contributions made to a traditional IRA and the investments inside these accounts grow tax-deferred until they’re distributed. However, there’s a 10% penalty if withdrawals are made before age 59½ and a 50% penalty after age 70½ if the required minimum distributions (RMDs) are not taken out. These rules encourage retirement planning savings, but discourage generational wealth planning by using RMDs to force the money out of retirement plans during the account owner’s life.
Federal ERISA laws for employer-based plans and federal and state laws for individual qualified retirement plans provide partial or full exemption from bankruptcy proceedings. These laws and regulations, however, don’t say whether accounts inherited after the death of the IRA owner (or an “inherited IRA”) are exempt from bankruptcy proceedings. Proper planning can help ensure after-death income tax deferral and protect inherited IRAs from creditors.
Although the IRS discourages IRA accumulations during life by setting strict penalties for violations of the RMD rules, the IRS established something called the Uniform Table in 2002 to ensure no one would outlive their IRA. The Uniform Table helps determine how fast IRA asset should be distributed during an account owner’s life. An IRA owner is not required to take out any more than the RMD, but if they take out only the RMDs during their lifetime, there may be money still in the IRA after death.
So what happens to an IRA after the account owner’s death? That depends on who is named as the beneficiary and how old the owner was at his or her death. A surviving spouse is the only beneficiary who can roll over a decedent’s IRA into their own, and in most cases, they will. As a result, any RMDs are now based on the surviving spouse’s life expectancy. There are exceptions for a surviving spouse, but for the most part, surviving spouses will typically roll over the IRA assets.
When a non-spouse is named a beneficiary, the rules are clear: they can’t roll over the deceased owner’s IRA into their own IRA. However, a non-spouse beneficiary is not required to immediately liquidate the decedent’s IRA. IRS rules do say that the non-spouse beneficiary must take out RMDs based on two factors: his or her age and whether the IRA owner died before or after age 70½. Ideally, an IRA owner names a trust as the designated beneficiary. That gives the trust’s beneficiaries creditor protections and protections from divorce proceedings, as well. However, there are specific rules to follow when naming a trust as a beneficiary.
Those worried about shoving money into the pockets of young children or grandchildren, but still looking to protect assets left to adult children from creditors, divorces or bankruptcies can do this by naming a trust as the beneficiary of the IRA. While some lawyers worry that the IRS might not deem a trust as a designated beneficiary, regulations do allow it. That means the beneficiary’s life expectancy will be used to determine RMDs, as long as the trust satisfies five rules:
- The trust must be valid under state law;
- It must be irrevocable at the death of the IRA owner;
- The beneficiaries must be identifiable in the trust;
- All trust beneficiaries must be individuals; and
- The trust or trustee certificate identifying all beneficiaries is delivered to the plan administrator.
The safest plan is for an estate planning attorney to create separate IRA trusts for younger beneficiaries to ensure their life expectancies will be used to determine RMDs. The person creating the estate plan must work with their plan administrator to ensure they’ve accepted the customized beneficiary designation naming the trust. That helps ensure the administrator will send the IRA to the trusts without triggering a distribution from the IRA, a taxable event.
Even though naming trusts and a designated beneficiary is recognized and allowed by the IRS, issues, delays and disputes can arise after death if the plan administrator, custodian or financial institution will not or does not know how to properly distribute the inherited IRA into a trust. That’s a far more common occurrence than you might think!
Inherited IRA planning can be a very effective tool in passing wealth down to your kids or grandkids. However, you’ll want to work with an experienced estate planning attorney to ensure everything is done properly.
For more information on this and other estate planning topics, explore our website and contact us to schedule your consultation today!
Reference: Elder Law Report (Jan 2017, Vol. 28, Issue 6) “IRA Trusts as Creditor Protection and Wealth Accumulation Vehicles”