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Estate Planning Topics

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Beneficiary Form Checklist

Naming the beneficiaries of your retirement assets may seem like an obvious task to complete as you plan for the future, but it is often also one of the most overlooked. Failing to properly update your beneficiary forms can compromise the legacy you worked so hard to build. 

To help ensure your assets are handled properly after your death, click here to download a “Beneficiary Form Checklist.”

For professional assistance with your beneficiary forms, click here to contact the office nearest you.

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Examining Qualifying Longevity Annuity Contracts in 5 Easy Steps

What is a QLAC (Qualifying Longevity Annuity Contract)?
A QLAC is a type of fixed income annuity that has special attributes and is held in a retirement account. 

Let's examine qualifying for longevity annuity contracts in 5 steps:

1. RMD (required minimum distribution) exclusion. The fair market value of your QLAC is excluded from your RMD calcuations. What’s the benefit? You can keep a greater portion of your IRA (or other retirement account) intact longer while enhancing the income stream the annuity will provide in the future.

2. The distribution deadline. You don’t have to start taking distributions from your QLACs at age 70 1/2, but you can’t delay them indefinitely. QLAC distributions must begin no later than the first day of the month after you turn age 85.

3. Your investment threshold. You will be limited as to how much of your retirement savings you can invest in a QLAC. The limit will be the lesser of $130,000 or 25% of your applicable retirement account assets. The 25% limit applies on a per account basis except for IRAs, BUT the $130,000 is a cumulative limit for all QLACs in all retirement accounts. For IRAs, the 25% limit will apply to the prior year-end total of all IRAs (not including Roth IRAs). 

4. Facts to keep in mind. QLACs cannot be variable or equity-indexed annuity contracts, though insurance companies may offer contracts with cost-of-living adjustments. QLACs cannot offer any cash surrender value. So if you buy one, just be sure you won’t be needing that lump-sum of money anytime soon! 

5. The death benefit. QLACs can offer two death benefit options: a life annuity (the rules can vary depending on a number of factors) and a return-of-premium option. These, of course, are the potential death benefit options allowed by the tax code, but that doesn’t mean that every QLAC contract will offer all of these options.

Have questions or need more information on QLACs or your unique situation, click here to contact the office closest to you. 

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Is a Trusteed IRA a Good Strategy for You?

Leaving a legacy to your loved ones may be important to you, but when the time comes for your beneficiaries to receive your IRA assets, are you confident they will use their inheritance in a way that you’d want them to? There are options available for you to have varying levels of control over how your beneficiaries use your assets after you’ve passed. You may want to consider either a trusteed IRA or a trust, but how do you know which option is best for you?

We've developed this worksheet for you to use to help decide what level of control you would like to have. Click here to view it.

How much control do you want over beneficiaries after death? No control? Total control? Somewhere in between? 

Some things you will need to consider when making this decision: 

  • Different levels of creditor protection
  • Size of your IRA
  • The price you're willing to pay
  • Using an individual as Trustee
  • Trust tax returns for IRA
  • Holding RMDs after passing
  • Allowing trustee to act on your behalf before passing
  • Qualifications for IRS "See-Through" trust

And much much more. This worksheet will help you walk through and develop a strategy that matches your financial situation and needs. 

View the worksheet here. Prior to taking any action, you should consult with a qualified financial adviser.

If you have any questions or need further information, click here to contact the office nearest you so that we can help. 

 

 

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Calculating an IRD Deductionin 5 Easy Steps

Have you recently inherited a loved one’s retirement assets? You should know that there is an income tax deduction available to you called the income in respect of a decedent, or IRD, deduction. When certain inherited assets are hit with both federal estate and income tax, this deduction can help offset the impact.

Your IRD deduction should be included on your 1099-R, but it can be easily overlooked by your accountant in the chaos of tax season. Taking the time to ensure it is filled out correctly can help you keep more of your inheritance in your hands.

What is an IRD (Income in Respect of a Decedent) deduction? An IRD deduction is a way of offsetting the impact of double taxation (federal estate tax and income tax) on certain inherited assets. It’s an income tax deduction for the beneficiary (miscellaneous itemized deduction, not subject to limitations).

When should you look for an IRD deduction? When an individual receives a 1099-R for a distribution that has code 4 (the death code) in Box 7. Don’t expect the CPA to pick up on this. In the tax time crunch it is easily overlooked.

Let's discuss how to avoid double-taxation on your inheritance in 5 easy steps.

1. Find out the amount of federal estate tax paid by the decedent. It’s listed on page 1 of the decedent’s estate tax return, Form 706.

2. Create an imaginary estate tax return that assumes no IRA. You’ll need an estate tax planning software program to do it. Plug in the value of the estate after subtracting the value of the IRA. This will tell you what the federal estate tax would have been if there were no IRA in the estate.

3. Subtraction. Subtract the imaginary federal estate tax as if there were no IRA (figured in step 2) from the federal estate actually paid (in step 1). That result is the amount of the IRD deduction.

4. Division. Divide the IRD deduction (from step 3) by the amount of the IRA included in the estate. This will give you the percentage of the deduction you (the beneficiary) will be able to claim at each withdrawal from the inherited IRA.

5. Multiplication. Multiply the amount of the IRA distribution you took during the year by the percentage in step 4 to get the amount of your annual IRD deduction. You cannot claim this deduction in a year that you did not withdraw from the inherited IRA. 

Prior to taking any action, you should consult with a qualified financial adviser. If you have more questions about your unique situation, click here to contact the office nearest you.

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Avoiding Non-Spouse Beneficiary Mistakes in 5 Easy Steps

How can I avoid making costly mistakes when I inherit an IRA from a person who was not my spouse? Inheriting an IRA can be a financial windfall, but it’s important to understand the complex, specific rules that apply to non-spouse IRA beneficiaries to avoid critical errors. 

1. At first, don’t do anything! Especially, don’t take a distribution from the IRA. Doing so without proper planning may forfeit years of potential tax-favored investment returns. Inherited IRA funds are distinct from IRA funds you save for yourself. They can’t be commingled with your other IRAs, you can’t make contributions to an account that holds them, and they can’t be converted to inherited Roth IRAs. Before acting, consult with a qualified advisor to learn the rules and plan how to best use the inherited funds in your personal situation.

2. Transfer inherited funds from the deceased owner’s IRA into your own new “inherited IRA.” In addition to moving the funds to a financial institution you prefer, this lets you “stretch” distributions from the IRA over your life expectancy to obtain more years of tax-favored returns (if you are younger than the deceased). The transfer between institutions must be made directly, trustee-to-trustee (non-spouse beneficiaries can’t use 60-day rollovers).

3. If the original IRA has multiple beneficiaries, split it so each obtains a separate inherited IRA. Otherwise, minimum distributions to all will be based on the life expectancy of the oldest beneficiary, which may cost the younger beneficiaries years of tax-favored returns. With separate IRAs, each beneficiary can use his or her own life expectancy.

4. Prepare to take required minimum distributions (RMDs). Beneficiaries of IRAs must begin taking RMDs in the year after that of the IRA owner’s death. RMDs are also required from inherited Roth IRAs. You are also responsible for calculating the RMD; consult with an advisor for assistance. A 50% penalty applies to RMDs that are not taken in time.

5. Heed deadlines and records. Inherited IRAs must be established and split by December 31 of the year after that of the owner’s death. Also, check the records of the deceased IRA owner to see if an inherited Traditional IRA contained non-deducted contributions, which provide tax-free distributions. And be sure to designate beneficiaries of your own to the inherited IRA that you establish.

Prior to taking any action, you should consult with a qualified financial adviser. If you have more questions about your unique situation, click here to contact the office nearest you.

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Planning for a Disclaimer

While it may seem unlikely, there are situations where beneficiaries decide to turn down an inheritance. Whether it’s to avoid the taxes associated with the assets, or to pass them along to another beneficiary, a disclaimer can help a beneficiary with the option to refuse an inheritance.

Executing a disclaimer, however, is not a simple task, and for it to work properly, a proactive plan should be put into place. Several steps should be taken, including naming contingent beneficiaries and consulting with a qualified professional.

Click here to download “Planning for a Disclaimer in 5 Easy Steps”

Have questions about disclaimers or options for inherited accounts? We are here to help! Click here to contact the office nearest you.

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Examining Qualifying Longevity Annuity Contracts in 5 Easy Steps

What is a QLAC (Qualifying Longevity Annuity Contract)?

A QLAC is a type of fixed income annuity that has special attributes and is held in a retirement account.

#1 - RMD (required minimum distribution) exclusion. The fair market value of your QLAC is excluded from your RMD calcuations. What’s the benefit? You can keep a greater portion of your IRA (or other retirement account) intact longer while enhancing the income stream the annuity will provide in the future.

#2 - The distribution deadline. You don’t have to start taking distributions from your QLACs at age 70 1/2, but you can’t delay them indefinitely. QLAC distributions must begin no later than the first day of the month after you turn age 85.

#3 - Your investment threshold. You will be limited as to how much of your retirement savings you can invest in a QLAC. The limit will be the lesser of $125,000 or 25% of your applicable retirement account assets. The 25% limit applies on a per account basis except for IRAs, BUT the $125,000 is a cumulative limit for all QLACs in all retirement accounts. For IRAs, the 25% limit will apply to the prior year-end total of all IRAs (not including Roth IRAs).

#4 - Facts to keep in mind. QLACs cannot be variable or equity-indexed annuity contracts, though insurance companies may offer contracts with cost-of-living adjustments. QLACs cannot offer any cash surrender value. So if you buy one, just be sure you won’t be needing that lump-sum of money anytime soon! 

#5 - The death benefit. QLACs can offer two death benefit options: a life annuity (the rules can vary depending on a number of factors) and a return-of-premium option. These, of course, are the potential death benefit options allowed by the tax code, but that doesn’t mean that every QLAC contract will offer all of these options.

Have questions? Click here to contact us. 

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How to Calculate Non-Spouse Beneficiary Distributions

Have you recently inherited an IRA as a non-spouse beneficiary? If so, then you will soon be required to determine exactly how much will need to be taken as your first required minimum distribution. There are ways to “stretch” the tax benefits of these accounts by leaving them in an IRA as long as possible; however, you will need to understand the specific rules for your situation.

If you are a designated beneficiary, the process is straight forward, as you usually will be required to use your own life expectancy to calculate your distributions. 

However, for non-designated beneficiaries, different rules apply. Not taking enough out before annual deadlines can result in penalties and fees.

To maximize your inheritance and limit penalties, click here  or click the image below to view our flow chart, “How to Calculate Non-Spouse Beneficiary Distributions”.

Have additional questions about how to calculate non-spouse beneficiary distributions? Click here to contact us so we can get you the answers you need to feel confident about your decision.

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