IRA Planning

Friday, February 18, 2011

Press Coverage of Estate Planning this Week (February 18, 2011)

Carla Fried of the New York Times reviews how the new estate tax laws affect lifetime gifts. Because federal gift taxes are now closely aligned with federal estate taxes, many parents will find that it makes sense to give gifts during their lifetime rather than provide an inheritance after their death. This is particularly relevant  during the next two years when the gift exemption is relatively high. See Estate and Gift Rules: Some Clarity for Now (Feb. 12, 2011).

Ashlea Ebeling of Forbes writes about states that have a separate estate or inheritance tax aside from the federal estate tax. The situation is constantly in flux, with states adopting or amending their estate tax laws every year. If you are planning on taking estate taxes into consideration when planning on where to retire, the advice is “prepare for the worst, and hope for the best.” See More States Want to Tax Your Estate (Feb. 15, 2011).

Christine Benz of Morningstar advises on steps to take regarding your IRAs in the context of estate planning. Recommendations include getting professional advice when naming beneficiaries, considering a charity as a beneficiary, and contemplating a conversion from a traditional IRA to a Roth IRA if you don’t expect to need the money during your lifetime. See Dos and Don’ts for Leaving IRA Assets to Your Loved Ones (Feb. 17, 2011).

Monday, February 14, 2011

NEET Tips

NEET Tips answers questions posed online to the NEET website

Why is a Roth IRA not placed in a revocable living trust?

Traditional IRAs and Roth IRAs are not placed in revocable living trusts because if the account owner transferred title of the account to the name of the trust, the IRS would view that as a distribution. In the case of a traditional IRA, the distribution would generate income taxes and possibly penalties for early withdrawals. In the case of a Roth IRA, retitling would likely destroy the tax-advantaged features of the account, and could lead to early withdrawal penalties. IRAs and other tax-advantaged retirement plans generally are never transferred to revocable trusts, although a trust may be named as a contingent beneficiary, typically after one’s spouse and children.

Thursday, January 27, 2011

NEET Tips

NEET Tips answers questions posed online to the NEET website

Why do retirement plans usually have a standalone trust separate from my revocable living trust?

It is not essential, but most estate planning attorneys recommend having a separate trust for retirement plan assets. There are several reasons. First, there are strict requirements for a retirement plan trust that are inapplicable to revocable living trusts (RLT), and trying to merge the two makes the RLT less flexible than it otherwise can be. Second, advanced IRA trusts can function as accumulation trusts, meaning that they receive annual Required Minimum Distributions (RMD) but do not distribute them to the beneficiary. This could become important if the beneficiary is receiving government benefits and the IRA proceeds would offset those benefits. Third, standalone IRA trusts very clearly state that they meet the requirements of being an IRA trust up front, so the IRA custodian, who must receive a copy of the trust, can quickly determine that the trust is a valid IRA trust. This also prevents the IRA custodian from having a copy of your complete RLT. Fourth, a standalone IRA trust alerts beneficiaries to the fact that IRA assets must be handled differently from most other assets, and thus the beneficiary is less likely to withdraw the account assets and waste the tax-advantaged benefits of the keeping the IRA intact as long as possible.

Wednesday, January 26, 2011

NEET Tips

NEET Tips answers questions posed online to the NEET website

How do I plan for a large IRA?

Options for handling IRAs and other retirement plan assets have expanded in recent years. It is now possible for your spouse and your children to inherit an IRA and use their own life expectancy to establish the required minimum distribution (RMD) schedule. A child’s ability to use their own life expectancy is critically important, because that allows the child to “stretch out” the RMDs as long as possible, while obtaining the favorable tax treatment for the account.

Planning for a spouse or child to inherit an IRA is relatively easy. You simply update the beneficiary designations on the account and check them every few years to ensure they remain current with your wishes.

There are potential downsides to allowing a young adult to inherit an IRA. Although no hard evidence exist, it is believed that approximately 70 percent of young adults who receive an inherited IRA cash it out within 18 months. What could be a perfect retirement plan for the son or daughter if they removed only the RMDs annually is instead “found money” and wasted, as is the tax-advantaged compounding of plan assets.

A better option for many IRA owners, typically those with accounts above $200,000 in value, is to set up a trust that IRA distributions must pass through. By having a Trustee in place, the beneficiary is unable to withdraw more than the RMD unless the Trustee agrees. If the beneficiary is young, the account usually grows faster than the RMDs exhaust it, so your son or daughter could have a sizable account when they retire.

For more information on planning for retirement assets, see the NEET article:

Making the Most of Your Retirement Accounts

Friday, January 14, 2011

Press Coverage of Estate Planning this Week (January 14, 2011)

Bill Bischoff of SmartMoney reviews the basics of estate planning for singles in light of the Tax Relief Act of 2010. For people with a net worth below $5 million, an update of one’s plan to recognize the new $5 million estate tax exemption level is appropriate, and if your estate is above $5 million, then reducing your taxable estate through annual exclusion gifts (up to $13,000), and paying for a relative’ educational or medical expenses may make sense. See Estate Planning Update for Singles (Jan. 12, 2011).

Arden Dale of the Wall Street Journal encourages readers to avoid complacency and ensure they have some estate planning in place. Despite new federal exemption levels for the estate tax, many people should revisit their wills because either they don’t have one, or they have one that has become out of date. See Planning For Your Estate, Tax Deal or Not (Jan. 11, 2011).

Christine Benz of Morningstar reviews issues related to inherited IRAs, including what happens if the IRA doesn’t have a beneficiary designation, what happens if a deceased person’s estate is the beneficiary, and what to do if the person listed as the account beneficiary wants to disclaim the account. See More Must-Knows About Inherited IRAs (Jan. 13, 2011).

Friday, November 19, 2010

Press Coverage of Estate Planning this Week (November 19, 2010)

Chuck Epstein of InvestorPlace Media discusses the basics of stretch IRAs, why tax deferred compounding is so important, and some common IRA mistakes to avoid. See Is a ‘Stretch’ IRA Right for You? (Nov. 18, 2010).

Paul Sullivan of the New York Times reviews steps some people are taking to reduce estate and gift taxes in this time of tax uncertainty. Issues include trying to take advantage of there being no estate tax in 2010, while being mindful that legislation could still occur to reinstate an estate tax for this year. See Planning for Income and Estate Taxes in an Uncertain Time (Nov. 12, 2010).

Friday, July 30, 2010

Press Coverage of Estate Planning this Week (July 30, 2010)

Mary Pilon of the Wall Street Journal discusses the problems of passing art, jewelry and other family heirlooms to children this year when the federal estate tax has been replaced by the modified carryover basis regime. Under the carryover basis rules, children inherit items at their original cost basis, rather than a stepped-up cost basis, and are subject to capital gains taxes if they later sell the item. One silver lining: estates qualify for at least $1.3 million of basis step-up. Nonetheless, inheriting items from decedents dying in 2010 is far more complicated than it was last year. See Looking a Gift Horse in the Mouth (July 23, 2010).

Kelly Greene of the Wall Street Journal reviews what to consider when contemplating a trust for IRA accounts. The benefits include being able to pass on large IRA accounts and limit a child’s distributions so that the child will have a lifetime of income, rather than a one-time cash windfall. However, creditor protection and whether to use an accumulation trust or a conduit trust are issues to be discussed with an estate planning attorney. See When Trusts Meet Retirement Accounts (July 24, 2010).

Friday, June 18, 2010

Press Coverage of Estate Planning this Week (June 18, 2010)

Daisy Maxey of the Wall Street Journal offers some reasons why college students ought to have wills, including ensuring that their parent’s estate planning is not disrupted. Absent a will, intestacy laws in most states would pass assets back to the parents where the son or daughter is not married and has no children. Passing money up a generation may lead to its being needlessly taxed when the parents pass on. See Planning for the Unthinkable (June 14, 2010).

David Kocieniewski of the New York Times questions the real impact of a return to the estate tax threshold of $1 million in 2011, suggesting estate planning and favorable tax provisions for small businesses make fewer estates liable for estate taxes. Furthermore, even with the low estate tax threshold, the number of affected estates would be low by historical standards. See What An Estate Tax Looks Like to the Taxman (June 11, 2010).

Paul Sullivan of the New York Times finds that the one-year repeal of the estate tax is making this a busy time for estate planners, both to fix older estate planning documents that didn't anticipate repeal of the estate tax, and to take advantage of estate planning methods that will likely soon be less appealing because of new legislation. See Confusion Over the Dormant Estate Tax Keeps Advisors Busy (June 11, 2010).

Annie Gasparro of the Wall Street Journal recounts some of the reasons that converting a traditional IRA to a Roth IRA may not make sense. She lists large near-term tax increases, owners too close to retirement, and potentially higher tax brackets during retirement. See Why You Shouldn’t Convert to a Roth IRA (June 14, 2010).

Kristen McNamara of the Wall Street Journal reviews actions taken by various states to attract trusts, including relaxing or voiding limits on how long a trust can last, eliminating income taxes for trusts, and enhancing asset protection features. See States Want Your Trust (June 14, 2010).

Friday, June 04, 2010

Press Coverage of Estate Planning this Week (June 4, 2010)

Jerry Gleeson of RegisteredRep.com writes that tax rules for Grantor Retained Annuity Trusts (GRAT) are likely to change soon. The changes include new minimum terms of 10 years, a mandated remainder interest at the conclusion of the term, and that annuity payments may not decrease during the first 10 years of the GRAT. The proposed changes have spurred an increase in the use of GRATs before the proposed rules become law. See Rats! GRATs Benefits Could Be Axed (June 3, 2010).

Radon Stancil and Rick Parkes write in The Apex Herald (Fuquay-Varina, N.C.) about “stretch” IRAs and how by carefully managing an inherited IRA you can increase its benefits substantially. But the rules are tricky, and both the person setting up the IRA and the beneficiary have to make the right moves to make the stretch IRA work. See Maximizing Your Money Through Stretched IRAs (June 2, 2010).

Friday, May 07, 2010

Press Coverage of Estate Planning this Week (May 7, 2010)

Ashlea Eberling of Forbes discusses the uncertain future of the estate tax, and some measures you can take to remove some of that uncertainty, including having a contingency plan for this year in which no federal estate tax exists (yet), keeping records of the tax basis of your assets, reconsidering if your son or daughter should take on the potentially complicated role of executor in these uncertain times, and making gifts to charities and family members. See How to Protect Your Family From Estate Tax Uncertainty (May 4, 2010).

Ryan J. Foley of Bloomberg BusinessWeek reports on a Wisconsin Supreme Court case that allowed the recipient of a pay-on-death account to avoid a proportionate share of estate taxes when the deceased did not specify how the tax apportionment should occur. This case points out the need for carefully drafted wills and trusts to ensure estate taxes are apportioned as the client desires. See Court: Estate , Not Heirs, Responsible for Taxes (May 4, 2010).

Kelly Greene of the Wall Street Journal discusses the use of trusts with IRAs to ensure that children and grandchildren don’t blow the account if they inherit an IRA account while still young. These trusts must be closely integrated with specific beneficiary designations to work properly. See Leaving Your Roth IRA to the Kiddies (May 2, 2010).

Deborah L. Jacobs of Forbes sheds light on why stretching out IRA accounts makes sense, and some of the steps IRA owners can take to get the maximum value out of the their IRA for themselves and their children. See How to Stretch Out an IRA (May 4, 2010).

Friday, January 22, 2010

Press Coverage of Estate Planning this Week (Jan. 22, 2010)

Ashlea Eberling of Forbes reviews charitable donations made between 2001 – 2007, and finds that as the federal estate tax was reduced, the percentage of wealthy decedents leaving charitable bequests also declined. Charitable organizations have contended for several years that allowing the estate tax to lapse, as it did at the beginning if this year, could lead to a significant reduction in overall charitable bequests. See Estate-Tax Lapse Could Hurt Charity (Jan. 19, 2010).

Robert S. Keebler, CPA, writes in Forbes about the correct ways to conduct a rollover of funds from a 401(k) into a traditional IRA, or from one IRA to another. If not done correctly, the account owner can end up paying taxes prematurely, or needing to hire an expert to untangle the ensuing mess. See The Dog Ate My IRA Rollover (Jan. 20, 2010).

Ann Pierceall of The State Journal Register (Springfield, Ill.) writes about distributing personal property to children and how to go about doing it. While deciding who gets what is never an easy discussion, it may be a comfort for parents to put it in writing. See Plan Now, Avoid Fights Later When Dealing With Parents’ Possessions (Jan. 16, 2010).

Gail Liberman writes in the Palm Beach Daily News about the most common estate planning mistakes and how to avoid them. One suggestion, don’t think that just because your family gets along great now, you need not worry about your estate. Many families who took this approach are now in court. See Estate Planning Missteps Can Be Costly (Jan. 16, 2010).

Friday, November 13, 2009

Press Coverage of Estate Planning This Week (November 13, 2009)

Victoria E. Knight of the Wall Street Journal writes that a weak economy makes for a bad time to sell a family company, but a good time to pass it on to the next generation. Several methods involve freezing the value of the business at today’s trough in the business cycle. See Wealth Transfers for Family Businesses (Nov. 9, 2009).

Daniel O. Tully, Esq., writes in the Bristol Press (Bristol, Conn.) about some of the fundamental differences between wills and trusts. See Senior Signals: Difference Between Will, Trust (Nov. 8, 2009).

Bob Carlson of KCI Investing discusses what recipients should know about inherited IRA’s. The rules are not complex, but neither are they obvious. And mistakes can be needlessly costly. See What Your Heirs Should Know About IRAs (Nov. 12, 2009).

Arden Dale of the Wall Street Journal writes that converting a traditional IRA to a Roth IRA can make sense even for people in the 60s and 70s, particularly where the goal is to transfer wealth and not just shelter money from taxes. See Roths as Tools for Wealth Transfer (Nov. 10, 2009).

Friday, October 30, 2009

Press Coverage of Estate Planning This Week (October 30, 2009)

Ashlea Ebeling of Forbes.com writes about how to lend money to your children in ways that satisfy IRS requirements. See How to Arrange a Loan Between Family Members (Oct. 29, 2009).

Deborah L. Jacobs of the New York Times writes about no contest clauses in wills and trusts, which provide that if a person contests a will or trust in court and loses, they do not receive an inheritance. Standards for applying these clauses, and whether to use them, are discussed in this article. See Clauses Aimed at Keeping the Heirs Quiet (Oct. 29, 2009).

Sandra Block of USA Today writes about common misperceptions regarding wills, such as the myth that if you have a will, your estate will avoid probate. See 5 Myths About Wills and What You Should Really Do (Oct. 23, 2009).

Philip Moeller of U.S. News & World Report writes that the economic turmoil has resulted in an increase in litigation regarding estate planning and intra-family relations. He offers some advice on lessening the chances your estate plan will be contested. See 8 Tips to Avoid Nasty Estate Surprises (Oct. 23, 2009).

Kelly Greene of the Wall Street Journal discusses inheriting a Roth IRA, both the benefits and how to title the account correctly. See The Gift That Keeps on Giving: A Roth IRA (Oct. 24, 2009).

Friday, September 04, 2009

Press Coverage of Estate Planning This Week (September 4, 2009)

Kate Ashford of CBS MoneyWatch.com wrote three articles addressing getting your finances and estate planning in order, what questions to ask your parents about their estate planning, and what steps are necessary when a loved one passes away.  See Keep the Money in the Family (Sept. 2, 2009).

Heidi Brown of Forbes.com writes about several areas of estate planning, including planning for minors, planning gifts for charities or family members, ensuring your medical wishes are known, and ensuring beneficiary designations are up to date, particularly if your marriage is ending.  See Your Go-To Guide to Estate Planning (Sept. 2, 2009).

Barbara Kate Repa of Caring.com covers some of the basic provisions that you should consider including in your will, such as naming an executor, specifying beneficiaries and alternate beneficiaries, how taxes should be paid, and providing for pets.  See Aging and Caring: 10 Things to Consider Including in a Will (Sept. 2, 2009).

Mark Kanny of the Tribune Review (Pittsburgh, Pa) reviews a recent book on blended families – where one or both spouses has children from a prior marriage – and highlights some of the major issues that tend to arise.  See How to Estate-Plan Your Blended Family (Aug. 31, 2009).

Kelly Greene of the Wall Street Journal discusses naming a trust as a beneficiary of an IRA, including some of the benefits and drawbacks, and what to avoid.  See Trust as Beneficiary of IRA is a Popular Strategy (Aug. 29, 2009).

Friday, August 14, 2009

Press Coverage of Estate Planning This Week (August 14, 2009)

Martin Vaughan of the Wall Street Journal reports that the U.S. House of Representatives will likely propose a temporary one-year extension of the current federal estate tax to carry through 2010 and prevent repeal of the estate tax next year.  This extension would be in lieu of a more long-term adjustment of the estate tax, which is scheduled to expire in 2010 but return in 2011 at a level that would impact far more taxpayers.  See Bid to Block Estate-Tax Repeal (Aug. 13, 2009).

Susan B. Garland of Kiplinger's Retirement Report points out that even if the federal estate tax threshold remains $3.5 million per person, state estate tax levels often differ.  Many states, including Vermont, have an estate tax threshold below the federal level, which can create unexpected estate tax liabilities and may require updating your estate plan.  See Protect Heirs From State Estate Taxes (Aug. 6, 2009).

Amy Feldman of BusinessWeek notes that new Roth IRA conversion rules taking effect in 2010 create opportunities for certain conventional IRA owners.  One big incentive is using a conversion for money to be left to children or grandchildren, because taxes paid now to complete the conversion are no longer part of your taxable estate, and the inheritors will never owe income tax on the distributions later.  See Is a Roth IRA Right for You? (Aug. 13, 2009).