Introducing the IRA Inheritance Trust! (Part 2)

IRA Inheritance Trust Stretch OutIn my last blog, I discussed the beneficial use of an IRA Inheritance Trust to ensure your beneficiaries maximize the power of inherited retirement accounts through compounded tax-free growth and less income taxes being due each year distributions are taken by taking advantage of distribution “stretch-out” over their life expectancies.  Today I will discuss the additional benefit of the IRA Inheritance Trust: Asset Protection!

Most people are familiar with the fact that retirement accounts are generally protected from creditors during their lifetimes. . . but the same does not hold true for inherited retirement accounts.  Inherited retirement accounts are not creditor-protected when it comes to your beneficiaries.  If one of your beneficiaries were to get into financial strife or be receiving financial-based government benefits, your beneficiary may lose the full value of their inherited retirement account value!  An inherited retirement account does not provide any of the following:

1)      Beneficiary deciding to cash out the account earlier than required and blowing income tax “stretch-out” (which was discussed in my prior blog);

2)      Wrong people eventually inheriting your retirement account assets (e.g. a spouse’s own children from a prior marriage or a second spouse upon your in-law’s remarriage);

3)      Poor spending habits of beneficiaries, their spouses and children;

4)      Poor money management/investment skills of beneficiaries;

5)      Your beneficiary’s spouse taking some of the retirement account in a divorce;

6)      Young, elderly or disabled beneficiaries who are unable to properly manage their affairs;

7)      A beneficiary losing financial needs-based government benefits; and

8)      A beneficiary’s lawsuits, creditors and even bankruptcy grabbing your retirement account inheritance.

The solution to all of these potential devastating consequences of an outright inherited retirement account is the IRA Inheritance Trust!  The IRA Inheritance Trust not only maximizes income tax deferral and wealth calculation, it also provides enhanced protection of any undistributed monies being held in the inherited retirement account, thereby ensuring:

1)      Proper distribution to your intended beneficiaries;

2)      Spendthrift protection;

3)      Professional money management;

4)      Divorce protection;

5)      Minor and disability protection;

6)      Government benefits protection;

7)      Lawsuits and creditor protection;

8)      Minimized income/estate taxation; and

9)      A legacy in your name for your loved ones.

As discussed in my prior blog, incorporating an IRA Inheritance Trust into your estate plan is a difference that could mean MILLIONS!

If you’d like to learn more about the IRA Inheritance Trust and whether it is appropriate for your family’s needs, please contact our office and we’d be delighted to meet with you and discuss the opportunity!

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Introducing the IRA Inheritance Trust! (Part 1)

IRA Inheritance Trust Stretch OutYou may know the difference between a Last Will & Testament and a Revocable Living Trust, but did you know there is a special trust specifically for retirement accounts?

Don’t make the faulty assumption that your Revocable Living Trust will work just as well for your retirement accounts as it does for your non-retirement accounts.  Due to the special rules and regulations governing retirement accounts, the IRA Inheritance Trust is a must-have for individuals or spouses with a combined value of $200,000.00 or more in retirement assets.  Why is this?

Well, an IRA Inheritance Trust can take a $200,000.00 retirement account and turn it into $1,000,000.00 for your beneficiaries!  Unfortunately, most beneficiaries simply cash out your retirement accounts once you have passed, unwittingly facing huge income tax penalties that may cause them to lose up to half of the retirement account’s value.  However, with an IRA Inheritance Trust, you can (1) require that your beneficiaries take advantage of a “stretch-out” over their life expectancy of the retirement account’s value and (2) provide asset protection for that inheritance.  Today’s blog will focus on the first issue and my blog later this week will address the second issue.

As stated previously, many beneficiaries, upon inheriting a retirement account, will simply contact the institution and request that the retirement account be liquidated and the money distributed to them.  This is a big mistake.  The value of the retirement account that they receive is taxable income to them in full.  Moreover, this taxable income very likely will jump the beneficiary into a higher tax bracket for that year, if not the highest tax bracket altogether.  This could result in almost half the value of the retirement account inheritance being payable to Uncle Sam for income taxes, which is disastrous in and of itself, but especially if the beneficiary has already spent their inheritance and doesn’t have the money to pay the taxes (which is altogether likely, based upon numerous studies).

If a beneficiary asks the right questions, they may be able to spread the retirement account inheritance over a five-year period so as to lessen the tax consequences.  However, very few beneficiaries will be aware of the fact that if properly done, they have the opportunity to “stretch-out” their retirement account inheritance over their own life expectancy.  By taking advantage of this opportunity, the retirement account can continue to be invested and compound tax-deferred with only required minimum distributions being taken out over your beneficiary’s life expectancy, resulting in compounded tax-free growth and less income taxes being due each year distributions are taken.

The result?  A legacy that you can provide to your children and/or grandchildren that could be worth a million dollars or more in the end!  By establishing an IRA Inheritance Trust, you can ensure this result for your family and make them IRA Millionaires!

If you’d like to learn more about the IRA Inheritance Trust and whether it is appropriate for your family’s needs, please contact our office and we’d be delighted to meet with you and discuss the opportunity!

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Commonly Overlooked Tax Deductions

Commonly Overlooked Tax DeductionsIf you’ve been watching television lately, chances are you’ve seen the commercial with the concessions salesperson leaving a stack of money on every seat in the stadium… H&R Block’s assertion that self-filing taxpayers last year paid more than a billion dollars in taxes that could have been saved by paying a professional.

In line with this same analogy, years ago, the gentleman who was running the IRS at the time told Kiplinger’s Personal Finance magazine that he figured millions of taxpayers overpaid their taxes every year by overlooking some common tax deductions.  With that said, wouldn’t you like to know if you’re one of the taxpayers these guys are trying to help?

Some of the tax breaks you may often overlook, or not even know about at all, include:

  • State Sales Taxes (which is even more important in states that don’t impose a state income tax);
  • Forgetting to include reinvestment dividends (which often occur automatically with mutual funds and other investments) in your tax basis may result in double taxation of those dividends;
  • Out-of-Pocket Charitable Deductions;
  • Student-Loan Interest Paid by Mom and Dad (a non-dependent child may qualify to deduct up to $2,500); and
  • Job-hunting Costs and Expenses (to the extent that your total miscellaneous expenses exceed 2% of your AGI).

Of course, these are just a few of the commonly overlooked deductions for self-filing taxpayers… there are many more to consider.  If you’d like to learn more, click here.

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2014 Tax Filing Requirements for Seniors

2014 Tax Filing Requirements for SeniorsChances are, if you recently retired, your correlating decrease in income may alleviate you from having to file taxes in future years.  For this tax season, if your gross income from 2013 is less than the following amounts (depending upon your filing status), you may very well not have to file:

  • Single: $10,000 ($11,500 if you’re age 65 or older by January 1, 2014);
  • Married filing jointly: $20,000 ($21,200 if you or your spouse is age 65 or older, or $22,400 if you’re both over age 65);
  • Married filing separately: $3,900 at any age; and
  • Head of Household: $12,850 ($14,350 if age 65 or older).

Of course, this is not an exhaustive list of information.  You must do a proper inquiry to ensure you meet your particular tax filing requirements.  To obtain a detailed breakdown of the federal filing requirements, contact the IRS at 800-829-3673 and request that a free copy of the “Tax Guide for Seniors” (publication 554) be mailed to you, or access it online by clicking here.

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What’s with myRA?

myRAIn his State of the Union message, President Obama announced a new retirement savings program for those people who don’t currently enjoy an employer-sponsored plan.

This new product, called myRA, is similar to a Roth IRA.  It is mainly geared toward low- and middle-income workers (married couples with modified adjustable gross incomes of up to $191,000 and individuals of up to $129,000).  Eligible workers may open a myRA with as little as a $25 initial investment and additional contributions as low as $5 at a time.

Post-tax contributions may be withdrawn at any time, though there will be a penalty for withdrawing earnings before age 59 ½.  Additionally, if a myRA grows to $15,000, then it must be rolled into a Roth IRA moving forward.  In fact, even if the maximum investment is never reached, the account will automatically be rolled into a Roth IRA after 30 years (which is how long the accounts may remain open).  With all these similarities, the question that begs a response is how does a myRA differ from a Roth IRA.  The main difference is that a myRA is backed by U.S. Treasury bonds, so investors will never lose their principal investments.

Click here to learn more about myRA.


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Happy Valentine’s Day!

Happy Valentine's Day!Happy Valentine’s Day!

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Kimberly Williams-Paisley Battles Mom’s Dementia

Kimberly Williams-Paisley Battles Mom’s DementiaCelebrities may seem to lead fabulous lives, but even their families and loved ones are not immune from the devastating effects of dementia.  In a new Redbook magazine article, Brad Paisley’s wife, Kimberly Williams-Paisley, opens up about the slow and agonizing process whereby she has slowly lost her mother to a progressively degenerative form of dementia.  She speaks of how she “watched a passionately joyful woman, a devoted mother, an engaged listener, and friend, deteriorate and transform into someone almost unrecognizable.”  Williams-Paisley goes on to speak of how her close-knit family tried to keep her mom with them at home for as long as possible, until the only option remaining was to move her to a care facility.  That decision was gripping, but one that had to be made when “this mostly manic, dangerous, crazy woman had taken over [her] mother’s body.”

The sheer honesty with which Williams-Paisley recounts her experience with her mother’s battle with dementia reveals the fact that even those families with substantial resources may not be able to keep a loved one from moving to a long term care facility.  According to The Alzheimer’s Association’s 2013 “Alzheimer’s Disease Facts and Figures” report, Alzheimer’s is growing at an alarming rate and has become the 6th leading cause of death in the United States.  Every 68 seconds, someone in America develops Alzheimer’s, a figure that is expected to increase to every 33 seconds by mid-century.  In fact, the report reveals that an estimated 5.2 million Americans of all ages are living with Alzheimer’s.  These statistics, though frightening, underscore the need for everyone to consider how they will plan for their long term care needs.  The longer we are living these days, the more important long term care planning needs to be addressed.  We all hope it won’t happen to us, but statistics reveal the vast majority of us will need some form of long term care during our lives.

To read more about Kimberly Williams-Paisley’s Redbook article, click here.

To read The Alzheimer’s Association’s 2013 “Alzheimer’s Disease Facts and Figures” report, click here:

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Planning for an Uncertain Life Expectancy

Planning for an Uncertain Life ExpectancyPlanning for retirement is an important goal for all of us; but in doing so, you also need to consider how long you think retirement will last. No one has the crystal ball that tells us our life expectancy, but no one wants to run out of money during retirement either.

According to the Social Security Commission, the average life expectancy for those still alive at age 65 is 84 for men and 86 for women. Keep in mind though, that those are just averages. The same data shows that one in four people alive at age 65 will live past 90 and one in ten will live past 95. So, don’t plan on being “average.”

If you want to plan for the uncertainty of your life expectancy, you may want to transfer some of that risk onto a third party by increasing or acquiring sources of lifetime income. Some of the mechanisms that may help you in accomplishing this goal include:

  • Deferring Social Security benefits
  • Electing life annuity payments from an employer-sponsored plan
  • Purchasing a life and/or deferred annuity

Of course, no one strategy fits everyone’s retirement needs, so be sure to consult with a trusted financial advisor to address how you may plan for such uncertainty. To learn more about the uncertainty you may face and how you may plan to address that uncertainty, click here.

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Will Readings: Out of Favor in America?

Past, Present, FutureEarlier this week we blogged about the reading of Former South African President Nelson Mandela’s Will before his family.  The reading of a Will to family members and beneficiaries upon someone’s death used to be very common in America.  In fact, many attorneys who drafted a client’s Will would retain the original in the attorney’s safe, ensuring the family would contact the attorney upon a client’s passing.

More and more these days, especially with the numerous ways people can safeguard their Will and other important documents, many clients choose to personally safeguard their own Will.  With that change, the formality of an attorney reading a Will to a grieving family has lost popularity as well.  These days, unless there is a substantial inheritance (above and beyond that of what Mandela left behind), most families do not request or require a formal reading of the Will.

With that said, many families will still consult with an attorney about what steps need to be taken to move forward in probating a loved one’s Will.  There are, of course, still courthouse formalities and filings that must be completed to properly administer a loved one’s estate upon the loved one’s passing.  Depending upon the situation and how arduous the administration will be (as some estates are much more complicated than others), some families will opt for an attorney to handle the administration of the Will at that time.  Nevertheless, the formalities of an attorney reading a Will before family members appears largely in the American past.

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The Reading of Former President Mandela’s Will

Mandela's WillFormer South African President Nelson Mandela’s Will was read to his family on Monday.  According to reports, he has left his $4.1 million estate to family members, the ruling African National Congress, former staff and several local schools, some of which inheritances will be received outright and others in trust.

Although the reading of Mandela’s Will was expected to incite another round of feuds among members of his large and factious family, Deputy Chief Justice Dikgang Moseneke reported that the Will had been accepted by Mandela’s family with no contest so far.  Perhaps that is because what he left behind that will prove most lucrative is his legacy, which some family members have already harvested for their own financial pursuits.

To learn more about the reading of Mandela’s Will, click here.

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