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.
10 Objects Not to Leave Your Kids
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…]
How to Give to Family With Warm Hands and No Taxes
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…]
How to Make Gifting a Part of Your Holiday Tradition
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…]
How Can a Roth IRA Reduce the Tax Burden Facing Your Heirs?
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…]
Planning for Family
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…]
How Grandparents Can Help Fund College Expenses with a 529 for Grandchildren
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”
One of the Best Ways to Plan for Grandkids? Inherited IRA Trusts
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”
When Naming a Guardian for Minor Children, Don’t Stop at One
This is the situation no one wants to even think about: both parents dying unexpectedly and young children being raised by someone else. But it does happen. That’s why having a will and naming a guardian is so important for anyone who has children: a will is the only place to name a guardian for your child. Usually the problem is deciding between someone who is really good with your kids and someone more experienced with handling money and investments. But there is another way, as explained by NJ 101.5 in “Choosing guardians for your minor children.”
Yes, you can appoint one person as a guardian of the child—this person will care for them—and designate another person as a guardian of the estate—this person will care for your child’s assets. Typically when minors are part of estate planning, the parents’ assets are put into trust until the minor reaches a specified age(s) when they can begin to take over some control as a trustee.
As an illustration, a trust can dictate that when the beneficiary reaches age 25, he or she can become a co-trustee with the guardian of the estate, but without the right to “remove and replace” (i.e. change) trustees. This simply means the guardian of the estate remains a trustee and, should they believe a given transaction is a misuse of trust funds, they can prevent the beneficiary from using trust assets. When he or she reaches age 35, they can retain the right to “remove and replace” trustees. At that point, the trust will be fully under their control, as they could replace any co-trustee with one more inclined to allow their type of spending.
The trustee will invest and distribute the funds at his or her discretion for the support, education, health, and welfare of the minor. If you go with two different people as named trustee and guardian, it gives them some oversight to ensure that neither one breaches his or her fiduciary duties. The bottom line? This means you can select the person best suited to care for your child to be their guardian and the person more suited to handle finances can be named as trustee.
In these types of cases where the trustee and guardian are not the same person, you’ll want to think about naming people who’ll be able to work together. They’ll need to talk about the child’s needs and the assets available in the trust fund. If you choose two people, the guardian won’t be spending beyond the trust’s ability to reimburse.
In addition, speak with your estate planning attorney about the value of holding a Family Care Meeting with your trustee and guardian. This provides you with an opportunity to explain your estate plan, how you wish funds to be used for your child, and can also be used to express any other wishes and details that you’d like them to know. This way, they are both aware not just of how you want the funds to be used, but what your estate plan is and what your wishes are for your children.
For more information about a Family Care Meeting, explore our website and contact us to schedule your consultation today!
Reference: NJ101.5 (October 24, 2016) “Choosing guardians for your minor children”
Got Kids in College? You Need These Documents
That long-awaited, bittersweet moment has finally arrived: your children are headed off to college. They are now adults—and likely far from home, where they must learn to fend for themselves. But if they run into a problem, let’s say a health emergency, the hospital might not take your phone call.
As reported in businessinsavannah.com’s article, “College-bound children need critical financial, health documents,”there are certain steps you can take so that you will be able to speak with doctors at a hospital and college officials on his or her behalf. Otherwise, you’re not legally allowed to help him. Why not?
Many state privacy laws don’t let parents make healthcare or financial decisions for their adult children. It doesn’t matter if you’re paying their college tuition and health insurance, your hands are legally tied. To solve this issue, you can have legal documents prepared that will allow you to continue in your guardianship role.
Three important documents are a power of attorney, health care proxy to assign you or another trusted adult as your child’s health care representative, and a HIPAA release. Without these, your child could be incapacitated and in a hospital or financially stranded somewhere. You could be required to petition a judge to let you help your child.
The pre-signed Health Insurance Portability and Accountability Act (HIPAA) form lets you immediately access your child’s medical records, and an In Case of Emergency (ICE) card can fit in a wallet and provide all his or her approved emergency contacts, health insurance info and known allergies.
Most of us don’t consider estate planning for our kids, at least not in the context of needing to care for them as adults should anything happen to them. However, if you want to be there for your college-aged child to the best of your ability, you’ll need legal basis. As they begin to transition into adulthood, they need to start thinking of their own plans for unexpected incapacity or death.
While you hope that you will never need any of these items, knowing that you will be able to help your college student if necessary will provide some peace of mind. For more information on this and other estate planning topics, explore our website and contact us to schedule your consultation today!
Reference: businessinsavannah.com (July 22, 2016) “College-bound children need critical financial, health documents”
