Estate Plannning

Retirement Planning: Should I name my spouse or my living trust as the beneficiary of my retirement plans? Pt. 1

The quick answer is both, the longer answer is how?

Let's assume that your living trust will be divided into a Family Trust and Marital Trust upon your death as described in the above answer.

 

If you knew the year of your death, your federal estate tax exemption allowed at your death, and the amount and value of your property when you die, then planning would be very easy.  Unfortunately it is not, and therefore usually the best estate plan will provide felxibility to deal with these unknowns.

In order to have fexibility after your death, it is usually recommended that you name both primary and contingent beneficiaries on all retirement plans.

Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author

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For more information on Madison and Jackson MS Wills Trusts and other Estate Planning please visit our website.

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Preserve Portability with Estate Tax Filing

 

An estate-tax return must be filed soon after the first partner's death—usually within nine months—in order for a couple to get this new benefit.

Don't lose the value of your partner's estate tax exemption by failing to file an estate tax return! Recently, the IRS issued new guidance on this important estate tax issue for married couples regarding the portability of individual estate tax exemption between spouses.

Each individual is allowed to exempt a certain amount of asset value from estate taxation at death, currently $5.12 million. Portability is a new concept, introduced in 2012, to make it easier for a surviving spouse to utilize both their own exemption and that of their deceased spouse.

Like most IRS regulations, however, there are important dance steps to follow in order to achieve the desired result. An estate tax return must be filed soon after the first spouse's death, usually within nine months. If you miss this filing, you likely will lose the value of the first spouse's exemption. This means the surviving spouse could only shelter about $5 million of estate assets from taxation, instead of the approximate $10 million value of the couple's combined exemptions.

You can read more about portability and the various estate tax consequences in a recent Wall Street Journal article, "Avoiding Estate-Tax Traps."

Even if your estate assets are far below the exemption amount, preserving both spouses' estate tax exemptions is an important aspect of one's comprehensive estate plan. Remember, we never know what twists and turns our lives may take, and a small estate today could grow through any number of possible circumstances over time.

Many estate planning attorneys prefer to use the exemption at the first death by the funding of an exempt trust because the portability provisions may sunset.

Reference: The Wall Street Journal (August 7, 2012) "Avoiding Estate-Tax Traps"

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Retirement Planning: What does it mean to coordinate my retirement plans with my estate plan? Pt. 3

4.  Protective Trusts.  Your goal might be protecting your beneficiaries from "outsiders" upon your death.  Outsiders could include a beneficiary's spouse or ex-spouse, creditor, or the government if the beneficiary has or incurs a significant health problem.  In order to ensure the best protections, your property should be left in trust for your beneficiary.  If you name your beneficiary directly as the beneficiary of your retirement plan. then he or she will likely lose those protections.  Again, coordination is essential.

Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author

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For more information on Madison and Jackson MS Wills Trusts and other Estate Planning please visit our website.

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Retirement Planning: What does it mean to coordinate my retirement plans with my estate plan? Pt. 2

2.  Income Tax Deferral.  As discussed earlier in this chapter your beneficiary might be able to have years of continued income tax deferral after your death.  It is important that your beneficiary designations be designed to ensure that this can happen.

3.  Estate Tax Reduction.  If you are married, and you die before your spouse, your will or living trust might create two trusts upon your death.  The first trust, known as a Family Trust, will hold an amount of property equal to your federal estate tax exemption amount ($3,500,000 in 2009).  The balance of your property (if any) will go to a Marital Trust.  The Family Trust is designed to provide for the needs of your spouse during her lifetime, but exclude the assets of the Family Trust from her taxable estate when she dies.  If you need to use your retirement plans to "fill-up" the Family Trust, your beneficiary designations needs to be coordinated to ensure that this can happen.

Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author

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For more information on Madison and Jackson MS Wills Trusts and other Estate Planning please visit our website.

For a Video on Health Care Directive please visit our website.

 

Is it Time to Review Your Estate Plan?

 

Your estate plan should be reviewed at least every 3 years–more often if there is a change in the law, your finances or personal circumstances.

Estate planning is a lifetime process. Your plans are constantly changing, growing, and adapting as you live your life. Don't forget to reflect these changes in your estate plan.

It's a good idea to review your estate planning at regular intervals. But there also are certain life events that could trigger the need for review and updates. Forbes points out three of them in their recent article, "When Should You Redo Your Will"? The top three events listed in this article include changes in the law, impending good fortune, and financial setbacks.

Essentially, you really need to adjust your estate plans whenever your life or finances change. Another recent Forbes article offers the "5 Life Events That Require An Estate Planning Review."

Their handy checklist says you should review your estate plan when:

1. You get married.
2. You get divorced, or your spouse dies.
3. You purchase or refinance a home.
4. You open new savings, bank or investment accounts.
5. You have new children or grandchildren.

So, have you reviewed your estate plan lately?

Reference: Forbes (August 9, 2012) "When Should You Redo Your Will?"

Forbes (August 13, 2012) "5 Life Events That Require An Estate Planning Review"

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For more information on Madison and Jackson MS Income Tax Plans, Wills, Trusts and Estate Planning please visit our website.

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Link to Mississippi Medical Association online

Spousal Lifetime Access Trusts (SLATs)

 

SLATs are a great way for married couples to utilize their current combined gift tax exemptions of $10.24 million, while retaining access to the gifted property should they need it.

If you want to maximize your estate tax savings under the current $5.12 million, don't delay! The estate and gift-tax exemption is set to expire at the end of 2012.

So, how can spouses maximize their giveaways and still retain some takeaways when it comes to their wealth? Forbes recently considered this question in an article titled "Spousal Lifetime Access Trusts--Use Your Gift Tax Exemption Without Giving It All Away." The answer: a Spousal Lifetime Access Trust – SLAT.

Essentially, with the SLAT approach, each spouse can give their respective $5.12 million exemption amounts into separate irrevocable trusts. However, each spouse also names the other as the SLAT beneficiary and other loved ones (their children, commonly) as secondary beneficiaries.

SLATs are a great way to maximize your estate tax savings while also maintaining access to your gifted property. With time running out for 2012, don't miss this opportunity before the rules change next year!

Reference: Forbes (August 9, 2012) "Spousal Lifetime Access Trusts--Use Your Gift Tax Exemption Without Giving It All Away"

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For more information on Madison and Jackson MS Income Tax Plans, Wills, Trusts and Estate Planning please visit our website.

For a Video on Health Care Directive please visit our website.

For a Video on Income Tax Planning please visit our website

For a Video on Business Succession please visit our web site

Link to Mississippi Medical Association online

 

 

Retirement Planning: What does it mean to coordinate my retirement plans with my estate plan? Pt. 1

COORDINATING MY RETIREMENT PLANS AND MY ESTATE PLAN

Your retirement plan is a financial asset; therefore you need to plan for it just like all of your other assets.  Ideally, your estate plan (including your will, living trust, and financial powers of attorney) is designated to deal with all of your financial assets.  However, your retirement plan has some unique features that present challenges.

 

1.  Beneficiary Designations.  Your retirement plan is a contract.  Upon your death, the IRA trustee or qualified plan custodian is contractually obligated to transfer any remaining funds to your named beneficiary, regardless of any contrary desire you state in your will or living trust.  For example if the named beneficiary of your IRA is your son, but in your will you leave all your property equally to your son and daughter, your son will receive all of your IRA.  Under law, the beneficiary designation trumps your will!  To complicate matters, many wills and living trusts state that all death taxes are paid out of the balance of the remaining will or trust property and are not paid by the beneficiary actually receiving the retirement proceeds.  Thus in our above example, if federal estate tax was due, both children would equally share in the payment of the death tax on the IRA even though your son received all of the proceeds.  Again, probably not what you wanted.  Therefore, you must match (coordinate) your beneficiary designations with your will and any living trust.

Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author

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For more information on Madison and Jackson MS Wills Trusts and other Estate Planning please visit our website.

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Address the Hard Questions Now

 

The primary task is providing guidance for the possibly difficult times ahead: communicating your wishes about health care and a funeral, information about things like finances, your will and what to do with the family home.

There is no time like the present to ensure the future. With proper estate planning, you can make your wishes known to your loved ones and prevent any unnecessary family feuds.

The importance of the present was the topic of a recent Wall Street Journal article, aptly titled, "Speak for Yourself, While You Can."

What are some of the most important issues to discuss? Start by communicating our wishes about health care, end-of-life choices, and funeral preferences. Be sure to address your finances, any plans you have made to finance long-term nursing care (like insurance policies, etc.), and what to do about the family home.

Despite our natural reluctance to talk about these matters, now is simply the best time to actually lay out your plans and discuss them with your family. Open communication and your personal guidance can often avoid future family squabbles.

So ask yourself this – what is so important to you that it simply cannot wait?

Reference: The Wall Street Journal (August 11, 2012) "Speak for Yourself, While You Can"

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For more information on Madison and Jackson MS Income Tax Plans, Wills, Trusts and Estate Planning please visit our website.

For a Video on Health Care Directive please visit our website.

For a Video on Income Tax Planning please visit our website

For a Video on Business Succession please visit our web site

Link to Mississippi Medical Association online

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Retirement Planning: What is a "Stretch Out" IRA?

Assuming that your beneficiary is younger than you, the term "stretch out" describes the ability for your beneficiary to withdraw the IRA assets over his or her life expectancy, rather than your remaining hypothetical life expectancy.  The beneficiary will still have a Required Minimum Distribution to withdraw each year, but if he or she uses his or her life expectancy rather than your life expectancy, that Required Minimum Distribution will be less each year, allowing the assets in the IRA to continue to grow tax deferred.

 

Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author

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For more information on Madison and Jackson MS Wills Trusts and other Estate Planning please visit our website.

For a Video on Health Care Directive please visit our website.

 

Retirement Planning: Should I change the ownership of my retirement plan to my living trust?

Succesful implementation of a living trust requires funding the trust or, in other owrds, titling one's assets in the name of the living trust.  Otherwise, assets not "in" the living trust at the time of death may be subject to probate, in spite of the existence of the living trust.

Retirement plan assets are an important exception to this guideline.  For example, putting IRA assets in the name of a living trust will trigger income taxes and, if under age 59 1/2, penalties.

Therefore, ownership should not be transferred, but your trust could be named as the beneficiary.  You should consult with your professional advisors prior to naming your trust as a beneficiary to discuss the advantages and disadvantages. 

Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author

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For more information on Madison and Jackson MS Wills Trusts and other Estate Planning please visit our website.

For a Video on Health Care Directive please visit our website.