How Does the SECURE Act Change Your Estate Plan?
How Does the SECURE Act Change Your Estate Plan?

How Does the SECURE Act Change Your Estate Plan?

How Does the SECURE Act Change Your Estate Plan? The SECURE Act has made big changes to how IRA distributions occur after death. Anyone who owns an IRA, regardless of its size, needs to examine their retirement savings plan and their estate plan to see how these changes will have an impact. The article “SECURE Act New IRA Rules: Change Your Estate Plan” from Forbes explains what the changes are and the steps that need be taken.

Some of the changes include revising wills and trusts which include provisions creating conduit trusts that had been created to hold IRAs and preserve the stretch IRA benefit, while the IRA plan owner was still alive.

Existing conduit trusts may need to be modified before the owner’s death to address how the SECURE Act might undermine the intent of the trust.

Rethinking and possibly completely restructuring the planning for the IRA account may need to occur. This may mean making a charity the beneficiary of the account, and possibly using life insurance or other planning strategies to create a replacement for the value of the charitable donation.

Another alternative may be to pay the IRA balance to a Charitable Remainder Trust (CRT) on death that will stretch out the distributions to the beneficiary of the CRT over that beneficiary’s lifetime under the CRT rules. Paired with a life insurance trust, this might replace the assets that will ultimately pass to the charity under the CRT rules.

The biggest change in the SECURE Act being examined by estate planning and tax planning attorneys is the loss of the “stretch” IRA for beneficiaries inheriting IRAs after 2019. Most beneficiaries who inherit an IRA after 2019 will be required to completely withdraw all plan assets within ten years of the date of death.

One result of the change of this law will be to generate tax revenues. In the past, the ability to stretch an IRA out over many years, even decades, allowed families to pass wealth across generations with minimal taxes, while the IRAs continued to grow tax tree.

Another interesting change: No withdrawals need be made during that ten-year period, if that is the beneficiary’s wish. However, at the ten-year mark, ALL assets must be withdrawn, and taxes paid.

Under the prior law, the period in which the IRA assets needed to be distributed was based on whether the plan owner died before or after the RMD and the age of the beneficiary.

The deferral of withdrawals and income tax benefits encouraged many IRA owners to bequeath a large IRA balance completely to their heirs. Others, with larger IRAs, used a conduit trust to flow the RMDs to the beneficiary and protect the balance of the plan.

There are exceptions to the 10-year SECURE Act payout rule. Certain “eligible designated beneficiaries” are not required to follow the ten-year rule. They include the surviving spouse, chronically ill heirs and disabled heirs. Minor children are also considered eligible beneficiaries, but when they become legal adults, the ten year distribution rule applies to them. Therefore, by age 28 (ten years after attaining legal majority), they must take all assets from the IRA and pay the taxes as applicable.

The new law and its ramifications are under intense scrutiny by members of the estate planning and elder law bar because of these and other changes. Speak with your estate planning attorney to review your estate plan to ensure that your goals will be achieved in light of these changes.

It is our goal to provide our clients with the highest level of legal services in the areas of Last Will and Testaments, Living Trust, Irrevocable Trusts, Estate Planning, Probate, Asset Protection, and complete Business Planning. If you or someone you know needs information on Florida estate planning, please contact us today at 239-449-8191 to schedule your free consultation.

Reference: Forbes (Dec. 25, 2019) “SECURE Act New IRA Rules: Change Your Estate Plan”

 

New Law Set to Make Big Changes to Retirement Plans

New Law Set to Make Big Changes to Retirement Plans: Congress is expected to pass a spending bill that contains major changes to retirement plans. The bipartisan legislation is designed to provide more incentives to save for retirement, but it may require workers to rethink some of their planning.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act changes the law surrounding retirement plans in several ways:

  • Stretch IRAS. The biggest change eliminates “stretch” IRAs. Under current law, if you name anyone other than a spouse as the beneficiary of your IRA, the beneficiary can choose to take distributions over his or her lifetime and to pass what is left onto future generations (called the “stretch” option). The required minimum distributions are calculated based on the beneficiary’s life expectancy. This allows the money to grow tax-deferred over the course of the beneficiary’s life and to be passed on to his or her beneficiaries. The SECURE Act requires beneficiaries of an IRA to withdraw all the money in the IRA within 10 years of IRA holder’s death. In many cases, these withdrawals would take place during the beneficiary’s highest tax years, meaning that the elimination of the stretch IRA is effectively a tax increase on many Americans. This provision would go into effect January 1, 2020.
  • Required minimum distributions. Currently, you must begin taking distributions from your IRAs beginning when you reach age 70 ½. Under the new law, individuals who are not 70 ½ at the end of 2019 can now wait until age 72 to begin taking distributions.
  • Contributions. The legislation allows workers to continue to contribute to an IRA after age 70 ½, which is the same as rules for 401(k)s and Roth IRAs.
  • Employers. The proposal increases the tax credit businesses get for starting a retirement plan and makes it easier for small businesses to join multiple-employer plans.
  • Annuities. The legislation makes it easier to include annuities in 401(k) plans by eliminating some of the fiduciary requirements used to vet companies and products before they can be included in the plan.
  • Withdrawals. The proposed new law would allow an early withdrawal of up to $5,000 from a retirement account without a penalty in the event of the birth of a child or an adoption. Currently, there is a 10 percent penalty for early withdrawals in most circumstances.

If the law passes as expected, workers will need to immediately reevaluate their estate plans. Some people have used stretch IRAs as an estate planning tool to pass assets to their children and grandchildren. One way of doing this has been to name a trust as the IRA’s beneficiary, and these trusts could have to be reformed to conform to the new rules. If a stretch IRA is part of your estate plan, consult with your attorney to determine if you need to make changes.  To read the bill, click here.

It is our goal to provide our clients with the highest level of legal services in the areas of Last Will and Testaments, Living Trust, Irrevocable Trusts, Estate Planning, Probate, Asset Protection, and complete Business Planning. If you or someone you know needs information on Florida estate planning, please contact us today at 239-449-8191 to schedule your free consultation.

 

10 Common Estate Planning Mistakes (and How to Avoid Them)

10 Common Estate Planning Mistakes (and How to Avoid Them)

People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too?

End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever.

Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though.

Here are 10 common estate planning mistakes people make and suggestions for how to take action.

1. Not having a real plan in place

I use the term “real plan” because everyone has some type of plan in place — it’s just likely a poorly designed plan for your situation with little thought behind its development. If you don’t have a will or trust in place, state succession laws and the probate process will help determine where your assets go. Do you really want your estate and end of life care determined by state laws and the court system?

Solution: Be proactive and meet with an estate planner and financial planner to set up an end of life and estate plan .

 2. Not updating plans over time

Estate planning isn’t a “set it and forget it” matter. Simply having a plan isn’t enough. Estate plans need to be updated after major life events, when your goals shift or when public policy changes.

For example, if you move to a new state, you need to review your estate plan. Legal instruments like wills, trusts and powers of attorney are state law driven documents, and moving can cause issues. If a new family member is born or someone dies, beneficiary designations might need modifications. And changes at the state or federal government level (e.g., the Tax Cut and Jobs Act passed in late 2017) can severely impact estate planning.

Solution: Revisit your estate plan any time you (or the government) experience a big life change.

3. Not planning for disability and long-term care

Seventy percent of people age 65 will need long-term care before the end of their life. A private room in a nursing home costs more than $100,000 a year, and a home health aide costs more than $50,000 a year.

Long-term care is likely the largest unfunded retirement risk retirees face today, and it’s easy to see why when you look at the numbers.

Considering the facts, it’s clear that no estate plan is complete without some planning for things like disability and long-term care. When you’re still working, disability planning is about making sure you have the right amount of short-term and long-term disability insurance. As you move into retirement, the focus will shift to long-term care planning — how you want to receive it and how you want to fund it.

Solution: Look into disability and long-term care insurance sooner than later. Every year you wait, the price goes up. Discuss your options with your adviser. In the case that long-term care insurance is not feasible, speak with an Elder Law attorney to review your options.

4. Not planning for estate tax liability

Estate tax liability feels like a rich person problem, which is true at the federal — but not necessarily the state — level. After the Tax Cut and Jobs Act of 2017, the federal exemption for 2019 is $11.4 million per person. This means a couple can exclude up to $22.8 million in a taxable estate from federal estate taxes. However, after 2025, the law reverts back to the previous $5 million exemption amount, indexed for inflation.

Currently, the government is in need of revenue and is looking toward new taxes as a solution. A wealth tax, raising income taxes or increasing estate tax revenue will likely all be on the table over the next few years.

Solution: Be cognizant of new taxes as you plan — and be aware that a number of states also have inheritance and state estate taxes.

5. Improper ownership of assets

End of life planning can expose oversights surrounding asset ownership. The first mistake people make is not owning property jointly as spouses. On specific occasions, spouses may want to keep property separate. But when titled properly, it creates creditor protections and efficiencies in transferring property upon the first spouse’s death.

Improper ownership of assets could also be where a business owner accidentally titles business property in their own name, or when retirement accounts are put into a trust when the goal is to keep them outside the trust.

Other times, people think they’re outsmarting the system by deeding real estate property to their kids or selling property for $1. These transactions are actually treated as completed gifts, potentially creating a gift tax liability or at least a requirement to file a gift tax return form to the IRS.

Taking asset ownership too lightly or improperly executing it can cause problems when it pertains to estate and end of life planning.

Solution: Figure out what your assets are and understand how they fit into your estate plan.

6. Lacking liquidity

Asset liquidity is important to have during life and especially after death. If your estate needs to be split among children, a surviving spouse or other heirs, it needs to have the proper amount of liquidity. Life insurance is an efficient way to create estate liquidity, help split up wealth and pay off debts.

If you’re a business owner, liquidity ensures your heirs have the cash they need to operate your business immediately upon your death. If you have a buy-sell agreement or other plan to transfer your business within your estate plan, liquidity is crucial — without enough liquidity, the buy-sell agreement could cease to continue.

Solution: Sit down with a trusted financial professional to determine how much liquidity makes sense for you and how you should go about creating it.

7. Not considering the impact of income taxes on you and your beneficiaries

Certain assets left to heirs can create unintended income taxes for your beneficiaries. While many people are aware that their IRAs and 401(k)s are subject to required minimum distributions (RMDs) after age 70.5, you might not know that inherited accounts can also be subject to RMDs. A 401(k) or IRA inherited by an adult child is subject to RMDs and these RMDs could impact the beneficiary’s tax situation. Money will have to come out of the account each year, and in most cases with traditional IRAs and 401(k)s, the entire distribution is taxable. The RMD is taxed as ordinary income and stacks on top of an individual’s current earnings.

If an heir is a professional in their peak earning years, the distribution will likely be taxed at the highest marginal tax rate. This isn’t ideal as it decreases the total wealth passed down.

Solution: If the original account owner does Roth conversions while living, their beneficiary could avoid taxes upon withdrawal because typically Roth distributions are non-taxable. You’d have to pay taxes to convert a traditional IRA into a Roth IRA, but then you’d experience tax-free growth. If heirs are in higher tax brackets than you are, it can make sense to convert before the heirs receive the accounts.

8. Not planning for minor children/beneficiaries

Although it sits at No. 8 on this list, one of the most important goals of estate planning is to make sure your children are cared for in the case of you and/or your spouse’s untimely death.

You also need to have a proper will in place that designates a guardian. (Make sure you ask the relative or friend before listing them as the designated guardian.) Beyond naming a guardian, spell out instructions for how the money should support the children — too often people leave money to the guardian to manage at their discretion.

Solution: Get life insurance to provide for your children, and make sure your will designates a guardian.

9. Not incorporating charitable gifting and bequests

Whether it’s a local nonprofit, church or alma mater, we like to give back to our community. Why not incorporate charitable giving into your estate plan?

The Tax Cut and Jobs Act of 2017 continues to prevent Americans from itemizing many deductions and, in turn, from receiving any tax benefits for their charitable contributions. Tax benefits aren’t the sole reason people give to charity, but they’re a nice bonus.

Solution: Certain estate planning and gifting techniques, like donor-advised funds and charitable remainder trusts, allow charitable giving that maximizes the federal tax benefits.

10. Not reviewing impact of beneficiary decisions on retirement accounts

As you learned from No. 7 on this list, most retirement accounts are subject to required minimum distribution rules once the account owner turns 70.5. The goal of qualified retirement accounts is to provide tax, investment and creditor protection benefits to encourage and support retirement savings. However, since retirement accounts can be one of the largest assets that an individual owns, they can represent a large part of their estate. As such, it’s important to consider how to pass along the account and which beneficiaries are the best to inherit a retirement account.

Once the account owner dies, the creditor protections on 401(k)s and IRAs fall off for the most part and heirs are required to spend down the accounts. Further complicating the situation is the fact that wills and trusts don’t have much control over what happens to our retirement accounts. Instead, the driver for who inherits IRAs and 401(k)s is the beneficiary designation on the account.

In some situations, it is best to leave retirement accounts to the surviving spouse. However, in other situations you might want to split up an account between children, grandchildren, a charity or a spouse. If your heirs have creditor issues it can make sense leaving the IRA or 401(k) to a trust. But generally speaking, under today’s tax and legal system we want to start by leaving retirement accounts directly to most beneficiaries and only use trusts if the situation requires it.

Solution: Beneficiary designations drive IRAs and 401(k)s, therefore, make sure these documents are up to date with the current and contingent beneficiaries aligning with your goals.

No one-size-fits-all plan exists for a good end of life or estate plan. Start with goal-based planning — determine what you want to accomplish and how your situation is unique. End of life planning ties into many areas of your life, so it’s important to be proactive and work with a team of qualified professionals like attorneys, tax professionals, insurance specialists and a financial planner.

Take the time to sit down and plan for a good end of life, so your heirs and assets survive and thrive.

It is our goal to provide our clients with the highest level of legal services in the areas of Last Will and Testaments, Living Trust, Irrevocable TrustsEstate Planning, Probate, Asset Protection, and complete Business Planning. If you or someone you know needs information on Florida estate planning, please contact us today at 239-449-8191 to schedule your free consultation.

https://www.kiplinger.com/slideshow/retirement/T021-S014-10-common-estate-planning-mistakes-to-avoid/index.html

Written by Jamie Hopkins, Esq., LLM, MBA, CFP®, RICP®. He serves as Director of Retirement Research at Carson Wealth and is a finance professor of practice at Creighton University’s Heider College of Business.

Why Shouldn’t I Delay Making Big Gifts?

The unified federal estate and gift tax exemption for 2020 will jump up to $11.58 million or effectively $23.160 million for married couples.

Market Watch’s recent article, “Get your estate plan in order (this means you),”says that, despite these huge big exemptions and the fact you’re not currently exposed to the federal estate tax, your estate plan may still need updating to reflect the current tax rules.

You may be exposed to the federal estate tax in the future, even though you’re okay right now.

Let’s look at some issues, regardless of whether or you’re “rich” enough to be worried about exposure to the federal estate tax. Year-end is a good time to conduct your estate planning self-check, so let’s get started.

Update beneficiary designations. A will or living trust doesn’t override the beneficiary designations for life insurance policies, retirement accounts and other types of investment accounts. This includes accounts, such as life insurance policies, annuities, IRAs, other tax-favored retirement accounts and employer-sponsored benefit plans. The person(s) named on the most-recent beneficiary form will get the money automatically if you die, regardless of what your will or living trust document might state.

Designate secondary beneficiaries. Designate one or more secondary (contingent) beneficiaries to inherit, if the primary beneficiary dies before you do. Consider this possibility.

Update property titles. If you’re married and own property with your spouse as joint tenants with right of survivorship (JTWROS), the surviving spouse will automatically get sole ownership of the property when the other spouse dies. The major advantage of JTWROS ownership is that it avoids probate. The property automatically goes to the surviving joint tenant.

Name guardians. One of the main purposes of a will, is to designate a guardian for your minor children (if any). The guardians must care for your children, until they reach adulthood.

Any life event could require changes in your estate plan. In addition, the federal and estate and gift tax rules have been unpredictable in the past, along with the state death tax rules. Talk with your estate planning attorney today.

Reference: Market Watch (November 11, 2019) “Get your estate plan in order (this means you)” 

It is our goal to provide our clients with the highest level of legal services in the areas of Last Will and Testaments, Living Trust, Irrevocable TrustsEstate Planning, Probate, Asset Protection, and complete Business Planning. If you or someone you know needs information on Florida estate planning, please contact us today at 239-418-0169 to schedule your free consultation.

 

How to Keep Giving After You Are Gone

How to Keep Giving After You Are Gone: Americans are a generous people, giving of our time and resources, through donations and volunteering. However, according to the article “Charitable conundrum: Why do we give up on giving at death?” from the Austin Business Journal, less than one out of nine individuals include a charitable donation as part of their estate plan.

Why do we stop giving at death? We know that the causes we care about continue to work after we are gone. There are many reasons for this, but perhaps the biggest reason behind his omission is that we tend to avoid estate planning. It’s an emotional challenge, preparing in a very real way to leave the world we enjoy with our loved ones. It’s not as much fun as going fly fishing or playing with the grandchildren.

Here are a few ways to include charitable giving in your estate plan, even when you aren’t having your estate plan created or reviewed.

Charitable beneficiaries. You can make a charity a partial beneficiary of a retirement account. They can be added as a primary beneficiary or as a contingent beneficiary. These changes can be made simply by contacting the custodian of the account and following their instructions for changing beneficiaries. Note that in certain states, spousal approval is required for any beneficiary changes. You can use this opportunity to also update your beneficiaries.

There’s a tax benefit in doing this. Charitable beneficiaries do not have to pay income tax on retirement distributions, although individuals do. Depending on the income level of an individual beneficiary, an heir could lose more than 40% of the inherited retirement account to state and local taxes.

The addition of a charitable beneficiary may restrict the ability for family members to stretch the receipt of retirement assets over time. Check with your estate planning attorney to make sure your good deed does not cause a hardship for family members.

Create a charitable IRA of your own. Another way to use retirement funds for a donation, is to roll some assets out of a main retirement account into a smaller retirement account with only charitable beneficiaries. Instead of consolidating accounts, you are doing the opposite, but for a good reason. This will allow you to manage the amount of money being left to the charity and take required or discretionary distributions from whichever account you choose.

Life insurance and annuities. Both of these vehicles use beneficiary designations, so the same strategy can be used for these accounts. Typically, the annuity must still be in the deferral state—not annuitized—and the life insurance contract must allow for changes to be made to the beneficiaries, which is true for most accounts. Note that life insurance proceeds are non-taxable to individuals and charities, and annuity proceeds are generally partially tax-free to individual heirs (amount of basis in the contract).

Talk with your estate planning attorney about the optimal strategies for making charitable giving part of your estate plan. Your situation may differ, and there may be other ways to maximize the wealth that is shared with charities and with your family.

Reference: Austin Business Journal (October 2, 2019) “Charitable conundrum: Why do we give up on giving at death?”

It is our goal to provide our clients with the highest level of legal services in the areas of Last Will and Testaments, Living Trust, Irrevocable TrustsEstate Planning, Probate, Asset Protection, and complete Business Planning. If you or someone you know needs information on Florida estate planning, please contact us today at 239-418-0169 to schedule your free consultation.

Why You—and Everyone—Needs an Estate Plan

Why You—and Everyone—Needs an Estate Plan:    At its essence, estate planning is any decision you make concerning your property if you die, or if you become incapacitated. There are a number of things to keep in mind when creating an estate plan, says KTUU in the article “Estate planning dos and don’ts.”

The first task is not what most people think. It’s very basic: making a list of all of your assets and how they are titled. Remember, the estate plan is dealing with the distribution of your assets—so you have to first know what those assets are. If you are old enough to have lived through the sale of several different financial institutions, do you know where your accounts are? Not everyone does!

Next, you need to be clear on how the assets are titled. If they are joint with a spouse, Payable on Death (POD) or Transfer on Death (TOD), jointly with a child, or owned by a trust, they may be treated differently in your estate plan, than if you owned them outright.

Roughly fifty percent of all adults don’t make a plan for their estate. That becomes a huge headache for their loved ones. If you don’t have an estate plan, your property will be distributed according to the laws of your state. What you do or don’t want to have happen to your property won’t matter, and in some instances, your family may be passed over for a long-lost sibling. It’s a risk.

In addition, if you don’t have an estate plan, chances are you haven’t done any tax planning. Some states have inheritance taxes, others have estate taxes, and some have both. Even if your estate’s value doesn’t come anywhere close to the very high federal estate tax level ($11.4 million per person for 2019), your heirs could inherit far less, if state and inheritance taxes take a bite out of the assets.

For a blended family, there are a number of rules in different states that divide your assets. In Alaska, for instance, if some of the children of one spouse are not the children of the other spouse, there is a statutory formula that depends on how many children there are and which of them are living. Different percentages of money are awarded to the children, which becomes complicated.

Another reason to have an estate plan has to do with incapacity. This is perhaps harder to discuss than death for some families. Estate planning includes preparing for what the individual would want to happen, if they were injured or too sick to convey their wishes to others. Decisions about health care treatments and end-of-life care are documented with a Living Will (sometimes called an Advanced Care Directive), so your loved ones are not left wondering what you would have wanted and hoping that they got it right.

One last point about an estate plan: be sure to check beneficiary designations while you are doing your estate plan. If you own retirement accounts, life insurance policies, or other assets with named beneficiaries, the assets will pass directly to the named beneficiary, regardless of the instructions in your will. If you opened an IRA when you had one child and have had other children since then, make sure to include all of those children and the proportion of their shares. There may be tax implications, if only one child receives the assets, and there may also be family fights if assets are not distributed equally.

Reference: KTUU (August 14, 2019) “Estate planning dos and don’ts”

 

What Should I Know: Estate Planning as a Single Parent

Every estate planning conversation eventually comes to center upon the children, regardless of whether they’re still young or adults.

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

Kiplinger’s recent article, “Estate Planning for Single Parents” explains that when one parent dies, the children typically don’t have to leave their home, school and community. However, when a single parent passes, a child may be required to move from that location to live with a relative or ex-spouse.

After looking at your children’s situation with your estate planning attorney to understand your approach to those relationships, you should then discuss your support network to see if there’s anyone who could serve in a formal capacity, if necessary. A big factor in planning decisions is the parent’s relationship with their ex. Most people think that their child’s other parent is the best person to take over full custody, in the event of incapacity or death. For others, this isn’t the case. As a result, their estate plan must be designed with great care. These parents should have a supportive network ready to advocate for the child.

Your estate planning attorney may suggest a trust with a trustee. This fund can accept funds from your estate, a retirement plan, IRA and life insurance settlement. This trust should be set up, so that any court that may be involved will have sound instructions to determine your wishes and expectations for your kids. The trust tells the court who you want to carry out your wishes and who should continue to be an advocate and influence in your child’s life.

Your will should also designate the child’s intended guardian, as well as an alternate, in case the surviving parent can’t serve for some reason. The trust should detail how funds should be spent, as well as the amount of discretion the child may be given and when, and who should be involved in the child’s life.

Your trust should state who has authorized visitation rights, including the right to keep the child for extended visits or for vacation. It should also name the persons who are permitted to advise or consent on major decisions in the child’s life, on issues about education, healthcare and activities.

A trust can be drafted in many ways, but a single parent should discuss all of their questions with an estate planning attorney.

Reference: Kiplinger (May 20, 2019) “Estate Planning for Single Parents”