Estate planning is meant to be an ongoing process, not a one-time transaction. In the same way that you never stop budgeting, saving, and investing as you go through life, it is also sensible to see estate planning as a lifelong project. Let’s look at some of the considerations you should make now that the 2018 midterm elections are in the history books.Continue Reading…
2019 is fast approaching. As we all prepare for the holidays and a new year, it is important that we wrap up any loose strings. Before entering into the new year, here are some things that need to be on your end of year checklist:
With the passage of the Tax Cuts and Jobs Act in December 2017 (effective January 1, 2018), the 2018 tax season is going to look a little different for many filers. In order to ensure you are not caught behind the eight ball, there are a few things you need to think about and do before you sit down to file your taxes.
A resume is a “snapshot” of your experience, skill set, and education which provides prospective employers insight into who you are and how you will perform. Imagine not updating that resume for 5, 10, or even 15 years. Would it accurately reflect your professional abilities? Would it do what you want it to do? Likely not. Estate plans are similar in that they need to be updated on a regular basis to reflect changes in your life so they can do what you want them to do.
Outdated estate plans -like outdated resumes – simply don’t work.
Owning your own business can be a great endeavor that takes a lot of passion and drive. Many small business owners focus on the day-to-day management and growth of the business, rather than thinking about a time when he or she may not be in the business. This is a far too common mistake. Future plans for your enterprise are even more important when one child works in the business but the others do not. Keeping the peace among your children after you are no longer able to participate in the business requires careful balancing of your estate plan.
What are the implications for your family if you don’t spend all the money?
Twenty years ago, the Roth IRA first became available to investors as a financial tool for their estate planning needs. These accounts have maintained their popularity because unlike their traditional IRA counterpart, a Roth IRA provides account owners tax-free income during retirement.
In fact, many people chose to convert their traditional IRA or 401(k) plan into a Roth IRA to benefit from this long-term tax advantage. (Of course, there is a current tax bill that has to be considered when you make a conversion.) The recently enacted tax reform, however, has removed one helpful opportunity: the ability to recharacterize –or undo –a Roth IRA conversion.
You can think of these recharacterizations as a second-look at whether the conversion made financial sense. For example, Kevin decides to convert a $100,000 traditional IRA to a Roth IRA. When Kevin does this, he has to pay income tax on the $100,000 now. This isn’t as bad of a deal as it sounds, because now the money is in a Roth IRA, where eventually all of the withdrawals will be tax free. When Kevin retires, he’ll have “tax-free” income from the Roth IRA instead of having to pay income tax on each withdrawal if it were still in the traditional IRA. In the past, if the market were to decline to say $90,000, Kevin could recharacterize –or undo –the conversion. This is important because he had to pay income tax on the full $100,000 of the conversion, but assets have declined in value only $90,000. So, Kevin would be paying income tax on a “phantom” $10,000 IRA conversion. Now, this second-look that a recharacterization offered is closed, so a Roth IRA conversion is just a little riskier than is used to be.
Implications For Loved Ones
Many people who create IRAs, and the ones who inherit them, are unfamiliar with the rules that apply to them. There are several basic scenarios that will result in different consequences for your loved ones in the event you pass away and leave behind an IRA.
First, if you die before spending all the money in your IRA you can leave the retirement account to your surviving children, grandchildren, or other beneficiary you have designated in your estate plan.
Second, the type of IRA –in other words, whether it is a traditional IRA versus a Roth IRA –is important as it vastly affects the amount of benefit your loved ones will receive. For example, when you leave behind a traditional IRA your family will pay income taxes on the money they withdraw when it is taken out of the account. On the other hand, if you leave behind a Roth IRA the money will be income tax-free for your family. Although both types of accounts are subject to the estate tax (or death tax), the death tax is likely a non-issue for most people now, as the federal estate exemption is presently over $11 million per person.
Third, you can create an IRA trust as part of your comprehensive estate plan. An IRA trust is special trust that is purposefully designed to receive IRA distributions for the benefit of your loved ones after you die. This powerful tool maximizes the benefit to your family upon your passing and can be used for both traditional or Roth IRAs. So, whether you decide to convert or not, you still need to consider an IRA trust.
Finally, although tax reformed altered the flexibility of IRA conversions by removing the ability to undo them with a recharacterization, a conversion may still be a good financial planning option for some. As you work with your financial and tax advisors on your conversions, consider your beneficiary designations and whether an IRA trust might be right for you.
Contact an Estate Planning Professional
There are several factors that should be considered when choosing financial and estate planning tools. Always work with a knowledgeable financial and tax professional. Then, work with us, as your estate planning professional, so we can achieve your goals and maximize the benefit to your loved ones.
Why Every Pet Parent Needs to Consider a Pet Trust Today
Estate planning is about protecting what’s important to you. Although much of the traditional estate planning conversation focus on surviving spouses, children, grandchildren, many pet parents wonder about what could happen to their “furry children” after their death or if they become incapacitated and unable to care for the pets. Read on if you’ve ever thought, “What will happen to my cat, dog, or other pet if I pass away?” “What if I’m incapacitated and unable to care for them?”
Enter the pet trust. This tool is something that can be easily incorporated into a new or existing estate plan to provide a strategy for caring for your pets. Remember, estate planning is about protecting what’s important to you. So, even if you anticipate outliving your pets, it’s always better to be safe than sorry.
Basics of Beneficiary Forms and Estate Planning
In the event of your untimely death, the manner in which your beneficiaries –or those people who receive your assets from your estate –are determined is highly dependent on how your property is titled.
Generally, property with title includes vehicles, boats, airplanes, real estate, bank accounts, savings bonds, life insurance policies, retirement accounts, and stock certificates. If you die without a will or a trust and haven’t used any beneficiary or transfer on death options, state law will determine who inherits property with a title. On the other hand, property without a title, such as jewelry, antiques, art, and even your digital assets are usually provided for in your will or trust, and if you don’t have one typically goes to your heirs at law. As you can see, who you have listed as a beneficiary –and not having a beneficiary designation at all –can have serious implications for your family after you have passed away.
Estate Planning for People Living Together, Bachelors, and Bachelorettes
Approximately half of America’s population over the age of 16 is unmarried. While much of the discussion involving estate planning focuses on married couples, this topic is just as important for a single person. In fact, many times it is even more important that a single person have a well-coordinated estate plan. This is because the default laws governing estates often work poorly for people without a spouse and may not adequately provide for a significant other or unmarried partner. Having a cohesive and well-drafted estate plan will ensure that you protect and provide for those you truly care about upon your death.
Baby boomers -the first generation tasked with the responsibility of planning for and funding their golden years. This generation, which includes those born between 1946 and 1964, have entered and continue to enter into retirement. As they make this financial transition into retirement, many are learning that they have made some of the most typical retirement mistakes. But, even if you’ve made a financial mistake or two, there’s still time to avoid these five surprisingly common planning mistakes baby boomers are making in droves.