Salt Lake City Estate Planning

Remember to Take RMD from Inherited IRA

If you inherit the IRA of an individual who has a required distribution for the year, you – as the beneficiary – must take any remaining required minimum distribution (RMD).

Not all assets are inherited in the same way. Take IRAs, for example. When does the IRA of your deceased spouse become “yours,” what should you do with it, and what do you need to know to stay out of tax trouble?

The Slott Report recently addressed the consequences of when a surviving spouse inherits the IRA of their deceased spouse and both have reached age 70 ½, the age for Required Minimum Distributions (RMDs). The article titled “Inherited IRA: When do You Own It?” noted that one must be very careful.

For starters, the inheriting spouse must be the “designated” beneficiary. Assuming that is the case, what happens when your spouse dies in December and has not withdrawn the required RMD? Must you as the surviving spouse calculate your RMD on both account balances, your spouse’s and your own?

RMDs are always tricky because the penalties are steep, with a 50% penalty tax on the amount required but not taken.

Bottom line: be sure to get competent legal and tax advice before proceeding if you are the designated beneficiary of an inherited IRA.

Reference: The Slott Report (May 6, 2013) “Inherited IRA: When do You Own It?”

Alzheimer's Disease and Estate Planning

A staggering 1 in 3 seniors dies with Alzheimer’s disease or other types of dementia, says a new report that highlights the impact the mind-destroying disease is having on the rapidly aging population.

One in three seniors dies with Alzheimer’s or other dementia. That is a rather sobering statistic. Given these numbers, it only makes sense to make your health care and legal plans now while there is still time.

This new statistic – hardly alone in a field of such startling stats – comes from a new report by the Alzheimer’s Association. This was discussed in a recent article in The Washington Post titled “Beyond memory loss, report finds 1 in 3 seniors dies with dementia that can impede other care.” Beyond these statistics is the realization that these conditions have a likelihood to impede other care and render a loved one vulnerable to further conditions. For example, pneumonia can be caused by poor motor skills (difficulty swallowing), complications to medication, and even the inability to understand and communicate regarding one’s health care matters.

All told, Alzheimer’s is the sixth leading cause of death, given that it is listed as the underlying condition on death certificates.

So, what should you do now? Realize that Alzheimer’s and dementia are very real and insidious threats to the health and well-being of yourself or your senior loved ones. Get your ducks in a row now, especially when it comes to advance health directives and estate plans.

This is not a do-it-yourself program either. Make sure you engage competent legal counsel to help you navigate the applicable laws.

Reference: The Washington Post (March 18, 2013) “Beyond memory loss, report finds 1 in 3 seniors dies with dementia that can impede other care”

For an Effective Estate Plan, Details Matter

When it comes to wealth management, the devil is in the details—the minutiae in plans and strategies that may be overlooked or disregarded, only to cause serious problems later on. The challenge, of course, is discerning the details before they create havoc.

Estate planning is more than creating a tool chest for wealth transfers. There must be careful coordination between many moving parts. For example, if you fail to mind the details of your insurance planning, then your estate planning tools may do more harm than good.

A recent article in AdvisorOne provides a good reminder of the need to take care of the details when constructing your estate plan. The article, titled “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details,” uses the example of trusts and LLCs to illustrate how even the best intended planning can go astray. These common entities are often used by estate planning attorneys to protect client assets from probate and creditors, and they are also used to transfer the assets to loved ones after death.

Unfortunately, unless the assets are properly retitled, the full benefit of the planning may not be realized. In addition, unless various insurance carriers are notified that the trust or LLC is now under a new owner (or additional insured), there may be challenges in the event of a future claim. Example: if the family home is transferred into a Qualified Personal Residence Trust (QPRT), but the property casualty policy is not updated to reflect this transfer.

Insurance is underwritten with the listed owner in mind. If you transfer an insured asset to a legal entity, then you might invalidate the insurance coverage.

The point is that there are no half-measures in planning for your estate. Perhaps this might be a good time to review your assets, your estate planning and your insurance coverage? If you have any questions, be sure to contact your estate planning attorney. 

Reference: AdvisorOne (February 21, 2013) “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details”

Help Needed...I Was Just Name the Executor of a Will

If you have been named the executor of a deceased person’s estate, you may find yourself with a job that few people are prepared for. You will likely find the assistance of a qualified estate planning attorney helpful, especially if the decedent was wealthy or has a particularly complicated estate.

Being named as executor in a loved one’s will is certainly an honor, but it’s also far more than that. To take on the role of executor is to take on several important duties, and sometimes liabilities as well. Accordingly, whether you are a newly named executor or are selecting an executor as part of your estate planning, the role of executor deserves your thorough understanding.

None other than Forbes recently took up this important issue with an article titled “Understanding the Role and Responsibilities of an Executor.” In effect, the executor (also known as the “personal representative”) is the named agent of the deceased, tasked with carrying out their will and tying up all of the legal and fiscal loose ends of life. Even a simple estate typically requires filing the will in probate and distributing assets appropriately to creditors and beneficiaries alike.

As you might imagine, when there is an inheritance in play a messy trifecta of courts, creditors, and family drama isn’t far behind. Depending on the nature and number of creditors, the family dynamics, and even the kinds of assets involved, things can get complicated fast.

While no encountered challenge need be insurmountable, it certainly helps to have the assistance and counsel of a professional who navigates these rapids repeatedly. Not surprisingly, the executor should secure the services of competent legal counsel sooner rather than later.

Reference: Forbes (February 14, 2013) “Understanding the Role and Responsibilities of an Executor”

Plan Now to Protect Your Assets

Asset Protection is pre-claim planning for those who are concerned that someday they might become liable to creditors unknown for claims unknown — what are known as “future unknown creditors”. Asset Protection is not about protecting the assets of somebody who already has a claim pending; that is known as “defrauding creditors” unless a reserve is set aside to pay existing creditors.

There’s a time to be planning, and there’s a time to be putting that plan into action. However, whether it’s the battlefield, the sports field, or the legal field, you ought not to be planning when the fur begins to fly! It’s just too late.

A recent Forbes article is a good reminder that asset protection is like fire insurance – the best time to take out a policy (i.e., make proper asset protection plans) is before the fire department arrives. The article is appropriately titled “Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival.”

Asset protection is about making sure matters are structured now to protect them if a legal claim may threaten them later. If there already is a claim, then any act to protect assets becomes suspect and reversible (or punishable).

If you have reason to protect your assets due to some future risk you can envision, then now is the time to plan by consulting with a competent estate attorney. Courts do not look favorably on last minute plays to protect assets.

Reference: Forbes (January 31, 2013) “Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival”

The Disinheritance Dilemma

Disinheriting someone can be a way to haunt a family member from beyond the grave, but there may be pragmatic reasons involved.

When it comes to estate planning, most people focus on the distribution of their assets to heirs ... but some are more concerned with not distributing assets to certain heirs. If you are among them, be forewarned that disinheritance, for whatever reasons, can lead to hurt feelings and even contentious legal battles.

A recent article from Reuters, “Disinheriting someone is not easy,” illustrates some of the many reasons people choose not to leave assets to certain heirs. The reasons are as varied as the assets involved, and may include anything from hard feelings within a family to a desire to "equalize" wealth among adult children with differing degrees of financial success. 

If you choose to disinherit someone, realize that some classes of heirs have legal rights that cannot be violated, such as spouses and minor children. Reuters explains it well:

Just as you cannot tell a divorce judge that you refuse to split assets or pay alimony, you cannot leave your surviving spouse's house and all of the money to a child or some other family member. Using language to disavow and disinherit your spouse will not help ...  the spouse can waive the will and receive whatever he or she is entitled to under state law. Minor children are also protected by the courts. Whatever financial support the minor is entitled to receive, he or she will get, assuming the money is available.

Regardless of the reason(s) you may have to disinherit someone, be sure to discuss them with your estate planning attorney. Properly drafted legal documents can help ensure your wishes are followed, as well as prevent unintended consequences such as hurt feelings or court battles. Simply put, “disinheritance” is not necessarily an ugly word, but it can turn ugly even when you do it for the right reasons if not done properly.

Reference: Reuters (January 31, 2013) “Disinheriting someone is not easy”

New Estate Tax Rules: What's good, What's Not so Good

With the passage of the American Tax Relief Act of 2012 (ATRA), Congress finally made the estate tax rules permanent.

We certainly have been through some uncertain times regarding estate taxes over the past several years. From changing exemption amounts, to a one-year repeal, to “band-aid” fixes, the only thing certain about the federal estate tax was its uncertainty.

Until now.

Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time.

Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption.

Forbes goes on to list five powerful strategies for reducing federal estate taxes:

     Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free.

     Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount.

     Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.”

     Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death.

     Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.”

If you havof the new estate tax rules is their permanence. The beast is their sting -- 40 percent on the first dollar over the exemption amount (currently $5.25 million). Failure to wisely plan for a potential estate tax liability can be disastrous for your family and/or your business. If you have questions regarding your potential estaet tax liability, you sould talk to a compentent estate tax attorney.

Reference: Forbes (January 30, 2013) “Want to Avoid the Estate Tax Cliff? Five Ways to Help”

Estate Planning: Not Just For the Rich

If you are like many other American families, the current upheaval in Washington regarding the fiscal cliff (and the estate and gift taxes) doesn’t particularly interest you. However, while the discussions in Washington generally only affect the extremely wealthy, don’t be fooled. You still need an estate plan for yourself and your loved ones.

No matter your net worth, it’s important to have, at the bare minimum, a basic estate plan. Such a plan ensures that your family and financial goals are met after you die and may include components such as a Will, a Durable Power of Attorney, a Living Will or Medical Power of Attorney, and possibly even a Trust.

So, now that you know you need some sort of estate planning, you may be wondering where to begin. A good place to start is taking inventory of your assets. Your assets include your investments, retirement savings, insurance policies, and real estate or business interests.

Then ask yourself three questions:  Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you’re ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?

Now, be sure to consult with your estate planning attorney to ensure your estate plan is properly drafted and executed. Preparing your own estate plan is not a safe DIY project, especially when the protection of all that you have and everyone you love is at stake. 

Estate Plans Outdated for Wealthy Families

Maintaining up-to-date estate plans is crucial to taking advantage of the benefits of advanced planning …

While you are living, essentially your estate plan is living too.  And just as your life is evolving, your estate plan should change accordingly.

Unfortunately, Congress and the White House are constantly shifting. As a result, your estate plan must adapt, improvise and overcome. For wealthy families in particular, many of their estate plans are simply out of date, and that’s not something you can afford to let slide.

According to a Private Wealth article titled, “Estate Plans Of Rich Families Out Of Date, Survey Says,” and a study conducted by Rothstein Krass, “More than three quarters of the estate plans of the ultra-wealthy clients studied were at least three years old despite the fact that nearly 95% of them have experienced significant life changes since the estate plans were drawn up.” However you spin that finding, it’s a sad state of affairs for many families, and your family need not become part of that sad statistic.

Simply put, if your life (or the lives of your loved ones) changes, for better or worse, you need to adjust your estate planning accordingly. The past few years have been devastating to families building wealth between generations and to families working hard to build wealth in this generation. As a result, just about every family needs to make some adjustments in its estate planning.

Maybe now is a good time to schedule a review with your estate planning attorney.

Reference: Private Wealth (September 25, 2012) “Estate Plans Of Rich Families Out Of Date, Survey Says”

Is it Time to Review Your Estate Plan?

Your estate plan should be reviewed at least every five 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? If you have any questions about your estate plan, talk with an estate planning attorney. 

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

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