Articles Posted in Retirement Assets

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book-cover-from-amazon-234x300My new book, Every Californian’s Guide to Estate Planning is available now and I’m excited to share it with all of you.

I wrote it because there isn’t a California-specific estate planning book out there, and we, as Californians, have some special things to deal with.

In addition to an introduction to wills and trusts, what probate is and how to avoid it, and how to pick guardians for your minor children, this book also discusses these California-specific issues (and many others):

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money signIn last week’s end of the year budget bill, Congress made permanent the qualified charitable rollover distribution. This lets individuals who are 70 1/2 or older donate up to $100,000 a year directly from their IRA to qualified charities. By doing so, donors can reduce their taxable income (because the money coming out of the IRA won’t count as taxable income to them) and charities can benefit from income-tax free gifts (because qualified charities don’t have to pay income tax on the IRA withdrawals). The charitable rollover counts towards the donor’s required minimum distribution.

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old-peoples-home-63614_150I recently read a Huffington post article about the need for women to plan their estates as if they were single. And that got me thinking about how, despite our best efforts to plan, life just has a way of constantly changing.  Children grow up, we get old, and even families slip away, or change over time.

I work with families to craft estate plans all of the time, and it’s hard enough to get them to focus on the inevitability of death. Let alone the possibility that one of them is likely to survive the other, and live alone in old age. But from now on, I will try and do a better job to get that idea on the table, too.

Statistics tell us that it’s likely to be the woman who survives.  According to a U.S. Census report, 80% of women will survive their husbands.  And it’s pretty common knowledge that close to half of marriages ultimately fail.

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Money in handI recently read an article about the value of giving your children (or grandchildren) the gift of compound interest and a more secure retirement, in the form of an annual contribution to their Roth IRA. What a great idea!

The author’s point is that many young people are struggling to pay off their educational debt and mortgages, or cope with the costs of child-care. But that, of course, is the best time to start saving money towards retirement, since money invested early has more time to grow.  Studies recommend saving between 15% and 17% of your earnings each year towards retirement — but many young people just can’t save anywhere near that amount at the beginning of their careers.

His solution: consider giving children and grandchildren a gift of $5500/year for deposit into a Roth IRA.

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It happens. People get married, People get divorced. Names change. And our clients sometimes ask us what they need to do to get their legal names changed on their driver’s license and social security card after one or the other transition.

Here’s the answer. 

1.  You need to change your name first with the Social Security AdministrationSocial Security will ask to see an ORIGINAL or CERTIFIED copy of your marriage certificate or divorce decree. If you need to order a copy of these documents, you’ll need to request them from the state or country recorder where the event took place.  Here’s a link to a list of these offices.

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pitchfork couple

If you are in the midst of a divorce proceeding, or have been divorced (which means about fifty percent of married couples according to the American Psychological Association) you’ve got some estate planning to do, or re-do. Here are a few of the most important things that you should know:

If you are in the process of divorcing, you are still legally married. The Family Code restricts your power to transfer assets until the two of you work out a property settlement and the divorce is final.

Make sure your estate documents do not give your almost ex-spouse power over you or your estate to the extent that you can.

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cash.jpgA provision in the American Taxpayer Relief Act of 2012, the fiscal cliff deal passed by Congress and signed by the President in January, 2013, provides people 70 1/2 years and older the ability to donate up to $100,000 per year directly from their IRA’s to charities. This provision will last until December 31, 2013.

Until February 1 of this year, people who took out their required minimum distributions in December 2012 or January 2013 can donate cash to charity and elect to count that distribution as a 2012 charitable IRA rollover. For donations during the rest of 2013, you need to ask the plan administrator to send the cash directly to the charity. To read more, here’s a good article from the National Council on Nonprofit.

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cash.jpgMany of our clients have significant assets invested in their retirement accounts. Sometimes these accounts were established years ago, requiring little thought as month after month retirement savings went in automatically. Such low maintenance is sort of a good news/bad news piece of the estate planning process– it makes it all too easy to forget how you set those accounts up. But it’s really important to review your accounts periodically to make sure that you’ve designated the right beneficiaries to inherit those accounts.

Regardless of how carefully you’ve structured your Will or Living Trust to manage your assets for those you love, it’s those beneficiary designations that determine who will inherit your retirement assets, not your estate plan. If long ago, you designated your first born to inherit that IRA, then had several more children—guess what? Only that one designated child will inherit those assets, not the rest of your kids. If you’ve spent time and money working with a lawyer to plan your estate so that it won’t pass through probate, then write the wrong thing down on a beneficiary form (or nothing at all), you may very well have to probate your retirement account, despite all of your careful planning.

Whenever you update your estate plan, please take the time to contact your retirement plan administrators and confirm your most current beneficiary designations. And have them send you a copy of those designations that you can place with your other estate planning documents. You want that written confirmation for two reasons: 1) to help your heirs know who you have designated as beneficiaries and 2) to confirm that the company has the proper designations on file–just in case they lose their records in a merger or sale.

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time is money.jpgMany of our clients are looking for ways to take advantage of the generous gift and estate tax exemptions available in 2012. If you can afford to do so, making an outright gift or gift in trust this year is a great idea because up to $5.12 million dollars per donor will pass free of gift tax. All subsequent appreciation of the gifted assets will be in the recipient’s estate, and not yours. That’s one great way to take advantage of today’s tax environment.

And here’s another, less obvious, one: consider converting your existing Individual Retirement Accounts (IRAs) or 401-Ks to Roth IRAs or Roth 401-Ks. When you convert your existing retirement accounts to their Roth equivalents, you’ll pay the income tax due on those assets at today’s rates. If you think that income tax rates are likely to rise in the future, as many do, now would be a great time to get that bill paid. Even better, ROTH accounts do not have the required minimum distribution requirements that traditional IRAs and 401-K accounts have, so you can convert the account, pay the income tax, leave it alone, and eventually, leave the account to your children. When they inherit the ROTH account, your children must begin to withdraw the funds, but those funds come out of the account free of income tax. Of course, the rules are complicated and you need to discuss this thoroughly with your financial advisors and accountants before you leap into a conversion, but it’s certainly food for thought.

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sad kitty.jpgIf you are considering making a gift to charity in your estate plan, own assets that have appreciated significantly, and would like to get a current income tax deduction, please talk to us about establishing a Charitable Remainder Trust (CRT).

A CRT doesn’t have to be complicated to offer compelling benefits. If you’d like to benefit a charity or multiple charities, you can establish the trust and transfer appreciated assets into the trust. As long as the trust conforms to IRS rules, the trust can then sell the appreciated assets and diversify the trust’s holdings. The CRT is tax exempt, so when the asset is sold, the trust pays no capital gains taxes. The entire amount can be reinvested.

You (or a named beneficiary) must receive a certain amount or percentage of the trust’s assets each year, and you will be taxed on the portion of each such distribution that is capital gain income. The trust can last for your lifetime, or a certain number of years, and the charity will receive the remaining assets when the trust terminates. You get an income tax charitable deduction based on the value going to the charity and the type of charity you’re benefitting.