Salt Lake City Estate Planning

Fees on Retirement Accounts

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Planning for an IRA Inheritance

If you needed a reminder of just how byzantine the rules are that govern inherited IRAs—and the importance of preparing your family for receiving such an account—the IRS just handed you one.

Parents who have substantial assets in an IRA should plan ahead for how their children may inherit those assets. The laws governing IRA assets, their transfers, taxation and inheritance, are complex. A single mis-step can be unnecessarily costly. A recent article in the Wall Street Journal outlines some of the specific perils, and offers a few salient tips. Above all, this is one aspect of financial and estate planning that truly requires professional advice. A good place to start learning more is in the Journal’s article, “Pitfalls of Inherited IRAs.”

Spend time with your financial advisor and estate planning attorney and ask questions about inherited IRAs so you know what to plan for.

Reference: The Wall Street Journal (December 10, 2011) “Pitfalls of Inherited IRAs”

 

Employee Retirement Plans...Easier Than You Might Think

Business owners should rethink what they "know" about sponsoring retirement plans, says the founder of a firm that administers 401(k)s for small companies.

It’s the last week of the year, and if your small business does not already have an employee retirement plan in place chances are good you’re thinking about it. Chances are also pretty good that you think it’s more difficult, and more expensive, to get started than it really is.

Bloomberg Businessweek ran an article earlier this month outlining some of the options, with hopeful advice. Nearly three-quarters of small employers do not sponsor retirement plans for their employees, perhaps because of outdated negative notions about their costs and complexity. If you are a small business owner, now may be the right time to revisit the concept of employee retirement plans. The options may be more attractive than you think.

Reference: Bloomberg Businessweek (December 6, 2011) “Establishing an Employee Retirement Plan”

 

Protecting Your Children...By Naming a Guardian

Naming a guardian for a young child in a Last Will and Testament can be one of the most important things a parent does. It can also be one of the hardest—in fact, many people don't make a will because they can't face the job. 

The Wall Street Journal typically focuses their editorial slant on financial assets, but an article last week actually touches on a much more important aspect of estate planning: Who will take care of your child(ren) if you die? It’s a tough question to face, but if ignored, it leaves the fate of an orphaned child entirely up to someone who usually is a stranger – a judge.

If you are the parent – or grandparent – of a minor child, here are some tips that might get you (or your adult child) motivated to complete proper planning:

Choose a guardian for now. Remember, you can change your mind and modify your will in the future.

Think outside the box. The guardian you name does not have to be a blood relative.

Remember that nobody’s perfect. You probably are not a “perfect” (i.e., flawless) choice to parent your own children – neither is anyone else.

Consider a mixed approach. You may want to name a guardian for your children, someone who is great with the kids; and a guardian for the estate to handle the finances. 

Our office would be happy to help you with your estate planning, from a basic last will and testament to a simple trust or complex estate tax planning trust.  Visit our website for more information. 

Reference: The Wall Street Journal (December 12, 2011), “The Hard Question.”

 

IRS Tips On Charitable Contributions

As individuals and businesses rush to make charitable contributions at this busy time of year, the IRS has issued several tips as reminders of tax law provisions that have taken effect in recent years. 

If you’re considering making last-minute charitable contributions before the end of the year, consider these tips from the IRS:

Charitable Contributions for Certain IRA Owners. If you are over age 70-1/2 and own an IRA, remember you can make a direct transfer tax-free of up to $100,000 per year to an eligible charity. Created in 2006, this provision expires at the end of this year.

Clothing and Household Items. Remember to get a qualified appraisal of clothing and household items if you plan to claim a deduction of more than $500. Household items include furniture, furnishings, electronics, appliances and linens.

Monetary Donations. Be sure you have a bank record or a written communication from the nonprofit that shows the name of the charity, the date and the amount of your contribution. If you want to deduct your donation of $250 or more, you must receive acknowledgment from the charity.

Go online to AdvisorOne for more tips and reminders.

Also, we would be happy to help you plan your year-end charitable gifts, or set you up with a long-term charitable giving plan using a private foundation, donor-advised fund, or other charitable giving structure.  Call, e-mail us, or visit our website pages for charitable giving for more information.

The Sandwich Generation Gets Squeezed

As our population ages, more Americans find themselves in the role of caregiver for their elderly parents – often before they have completely graduated from the parenting role for their own children. A recent issue of Financial Advisor Magazine addresses the question of what trusted financial advisors can do to help their clients with caretaker challenges. Advice includes helping ensure all necessary legal documents are in order – for both the caretakers and their charges; finding financial assistance to hire help; and investigating the role of long term care insurance.

 

Reference: Financial Advisor Magazine (October 2011) “Caretaker Challenges.”

Suggested Key Words: long term care insurance, caregivers, caretaker challenges

ESTATE LAW / IRA INHERITANCES

A larger share of people's savings is winding up in IRAs—even as estate-tax rules are getting trickier and the markets are growing more volatile. All of this is making life more complicated for widows and widowers, and could cause them to make significant mistakes with their money.

Surviving spouses have a number of pressing issues to consider after the death of a spouse. It always has been that way. Now, however, their lot is even more difficult as more is at stake, to include mistakes regarding IRA gotchas.

Unfortunately, not giving due attention to an inherited IRA can be a very costly mistake.

The problem is the IRA rollover penalty. The Wall Street Journal rates it as one of the biggest mistakes a surviving spouse can make. The standard advice is to roll over a decedent’s IRA into your own IRA. However, especially in light of current events, this might be a rule of thumb to avoid until you’ve weighed your own options.

IRAs are tricky and getting increasingly trickier. Not to mention the reality that an ever increasing amount of personal wealth is being held and passed down in the form of IRA investments at this time of incredible market volatility. If you are at or over age 59, then an IRA rollover may not be a bad idea (since you’ll have access to the IRA funds shortly).

Nevertheless, a great many spouses will receive an IRA before that age and it’s not usable wealth to cover all sorts of new expenses, unless you pay the 10% to make early withdrawals. Instead, the IRA could simply be inherited and remain in the name of the decedent. On the downside, this approach would require taking regular and taxable withdrawals on the account right now.

In general, a great deal of thought should go into how to best “inherit” an IRA. The Wall Street Journal article goes on to mention a few other survivor mistakes, along with some interesting statistics about IRA rollovers.

Reference: The Wall Street Journal (November 12, 2011) “Survivors’ Biggest Mistakes”

 

 

Donor-Advised Funds For The Savvy Philanthropist

Is using a third party a better way to donate your charitable dollars?

There has been a lot of interest this year in “donor-advised funds (DAF),” as a savvy tool for charitable giving. As we head further into the season of giving (and, with it, year-end tax planning), and 2012 thereafter, it might be a perfect time to consider establishing your own DAF.

As a recent Reuter’s article asked, “do donor-advised funds make sense?” They certainly do from a tax standpoint, as you receive a charitable deduction upon giving to the fund, just as you would for giving directly. You then gain the ability to “advise” the fund, along with the other investors, toward worthy charities as you discover them.

The final say comes down to the fund directors themselves, and the other investors may have opinions that vary from your own. It does mean that you can give large amounts of money to charity without already having formulated a specific and exhaustive plan regarding to whom and how much you wish to give.

That said, with some DAFs, there may be other detractions, like the administrative costs. After all, these funds are overseen by the major money-management companies and they will charge fees for the service, usually in relation to the amount of your gift. As the thought goes, being charged for a money-manager to make more money for you is one thing, but to be charged from the money that was to go to a good cause might just be something else entirely. There certainly are those would be philanthropists who don’t like the practice for this reason.

Local “community foundations” are an excellent alternative to the DAFs managed by the for-profit major money management companies. Their fees typically are much lower and the local community itself benefits by being, well, local.

As with anything financial, it is best to do your own due diligence before proceeding. For more reading you can check out the New York Times article from a little while ago written by a Boston College Professor, Ray Madoff: “Tax Write-Off Now, Charity Later”

Reference: Reuters (December 5, 2011) “Charitable Giving:  Do Donor-Advised Funds Make Sense?”

 

 

Deductibility of Long-Term Care Insurance Premiums

Can a tax deduction help you afford long-term care insurance? If you’re buying it as an individual, maybe. If you’re self-employed and buying it through your business, absolutely.

With the death of CLASS, the would-be first public option long-term care insurance policy, there are a good number of people left puzzling about how to protect themselves against the growing likelihood of needing long-term care in the future. How can it be made more affordable? For the self-employed, a recent article from Forbes has an idea worth investigating.

Any individual who purchases a long-term care insurance policy receives certain tax advantages based on their age group and the cost of the premiums (relative to their adjusted gross income (AGI)).

The premiums can be deducted as medical expenses when they exceed 7.5% of your AGI (or exceed 10% after 2013 when the relevant parts of the health bill come into affect). However, this amount also is limited by your age bracket and an effective cap in deductions. For example, in 2011, if you’re 41 to 50, it’s $640 a year; if you’re 51 to 60 it’s $1,270; if you’re 61-70 it’s $3,390; and if you’re 71 and older, it’s $4,240.

But what if you’re self-employed? You can purchase it though your business! As a business expense it can be 100% deductible. Note: Businesses already can do this with health insurance and, when you’re the sole owner and sole employee, you can direct the operations of the business to include these benefits.

The original article has at least one success story and, although there are certain problems to mixing your business and personal life, this may just be a solid way of securing a very important financial objective.

Reference: Forbes (December 6, 2011) “Uncle Sam Can Help You Pay for Long-Term Care Insurance”

 

 

 

Social Security’s Rule 11-1p – Catch 22?

The Social Security Administration (SSA) has recently changed the 11-1p rule that previously allowed multiple filings for benefits. This updated rule will have a potentially dramatic effect on anyone who wishes to file a subsequent application for benefits relating to the same condition.

According to a recent press release out of the Digital Journal, the Social Security Administration has been changing some of its rules, and that can mean a tough time for those applying for Social Security Disability (SSD) or Supplemental Security Income (SSI) benefits.

According to the Social Security Administration’s (SSA) 11-1p rule, it used to be possible to have multiple filings for the same benefits. It’s a pretty useful ability when your first filing is denied and it has to be appealed. Why? Because then you can file an entirely new claim and wait for either the new claim or the appealed claim to come back.

Waiting for an appeal can take an awfully long time (and during that time you likely are in need of those benefits). Of course, 11-1p is the rule that’s been flipped and now you can’t have two filings for the same benefit. As a result, you will need to choose between waiting out the appeals process or letting it drop and then filing an entirely different one.

Using the appeal track alone might cost you that much more time, and simply filing again will mean that you’ll miss out on back-benefits (for the time you were waiting), if the appeal would have gone through.

It’s an unfortunate position and it highlights the need to file with the SSA correctly the first run through.

Reference: Digital Journal (December 1, 2011) “New SSA Rule Disallows Multiple Benefits Applications”