IRA

Estate Planning for a Blended Family?

A blended family (or stepfamily) can be thought of as the result of two or more people forming a life together (married or not) that includes children from one or both of their previous relationships, says The Pittsburgh Post-Gazette in a recent article, “You’re in love again, but consider the legal and financial issues before it’s too late.”

Research from the Pew Research Center study shows a high remarriage rate for those 55 and older—67% between the ages 55 and 64 remarry. Some of the high remarriage percentage may be due to increasing life expectancies or the death of a spouse. In addition, divorces are increasing for older people who may have decided that, with the children grown, they want to go their separate ways.

elderly couple ARAG members
Getting married for the second time? Don’t forget to review your estate planning documents.

It’s important to note that although 50% of first marriages end in divorce, that number jumps to 67% of second marriages and 80% of third marriages end in divorce.

So if you’re remarrying, you should think about starting out with a prenuptial agreement. This type of agreement is made between two people prior to marriage. It sets out rights to property and support, in case there’s a divorce or death. Both parties must reveal their finances. This is really helpful, when each may have different income sources, assets and expenses.

You should discuss whose name will be on the deed to your home, which is often the asset with the most value, as well as the beneficiary designations of your life insurance policies, 401(k)s and individual retirement accounts.

It is also important to review the agents under your health care directives and financial powers of attorney. Ask yourself if you truly want your stepchildren in any of these agent roles, which may include “pulling the plug” or ending life support.

Talk to an experienced estate planning attorney about these important estate planning documents that you’ll need, when you say “I do” for the second (or third) time.

Reference: Pittsburgh Post-Gazette (February 24, 2019) “You’re in love again, but consider the legal and financial issues before it’s too late”

How Do I Include Charitable Giving in My Estate Plan?

One approach frequently employed to give to charity, is to donate at the time of your death. Including charitable giving into an estate plan, is great way to support a favorite charity.

Baltimore Voice’s recent article, “Estate planning and charitable giving,” notes that there are several ways to incorporate charitable giving into an estate plan.

Charitable Giving
Incorporating charitable giving in your estate plan is one of the most common ways to give to charity.

Dictate giving in your will. When looking into charitable giving and estate planning, many people may start to feel intimidated by estate taxes, thinking that their family members won’t get as much of their money as they hoped. However, including a charitable contribution in your estate plan will decrease estate tax liabilities, which will help to maximize the final value of the estate for your family. Talk to an experienced estate attorney to be certain that your donations are set out correctly in your will.

Donate your retirement account. Another way to leverage your estate plan, is to designate the charity of your choice as the beneficiary of your retirement account. Note that charities are exempt from both income and estate taxes. In choosing this option, you guarantee that your favorite charity will receive 100% of the account’s value, when it’s liquidated.

A charitable trust. Charitable trusts are another way to give back through estate planning. There is what is known as a split-interest trust that lets you donate assets to a charity but retain some of the benefits of holding the assets. A split-interest trust funds a trust in the charity’s name. The person who opens one, receives a tax deduction when money is transferred into the trust. However, the donors still control the assets in the trust, and it’s passed onto the charity at the time of their death. There are several options for charitable trusts, so speak to a qualified estate planning attorney to help you choose the best one for you.

Charitable giving is a component of many estate plans. Talk to your attorney about your options and select the one that’s most beneficial to you, your family and the charities you want to support.

Reference: Baltimore Voice (January 27, 2019) “Estate planning and charitable giving”

What Parents of Minor Children Need to Know About Writing a Will?

Who wants to think about their own mortality? No one. However, it’s a fact of life. Failing to plan for your eventual passing by preparing a will — especially for parents of minor children — can result in issues for your loved ones. If you die without a will, it can mean conflict among your survivors, as they attempt to see how best to divide up your assets.

Naming a guardian is the most important thing you can do

Fatherly’s recent article, “How to Write a Will: 8 Tips Every Parent Needs to Know” says that families can battle over big assets like cars to small assets like a collection of supposedly rare books. They can fight over anything and everything. So, remember to prepare and sign a last will and testament to dispose of your property the way you want.

Dying without a will means your estate will be disposed of according to the intestacy laws in your state. That could leave your loved ones in the lurch that you may have wanted to provide for. For instance, in some states, your spouse may only get half your estate, with the remainder going to your children.

Writing a will is essential, and you should not try to do it yourself. Instead, hire an experienced estate planning lawyer. Along with this, keep these items in mind.

Plan for Every Scenario. When doing your estate planning, consider the various scenarios and contingencies that can happen after you’re gone. A well prepared will includes when and where you want your assets to go. Be wise in how to distribute your assets, to whom they will be going and the timing.

Family Dynamics. You must be very specific when drafting up a will, especially if family circumstances are unique, such when there are children from previous marriages who aren’t legally adopted by a spouse. They could be disinherited. Work with an attorney to make sure they receive what you intend with specific details. If you and your partner aren’t legally married, your significant other could find himself or herself disinherited from your assets after you’re dead.

Designating Your Children’s Guardian. Naming a guardian is the single most important thing that parents of minor children can do.  If you don’t name a guardian for your children (in cases of either single parenthood or where both parents pass away), the state will determine who will raise your children.

Specificity. Your will is a chance to say who gets what. If you want your brother to get the baseball card collection, you should write it down in your will or it’s not enforceable. In some states, including Florida, you can attach a written list of these personal items to your will.

Health Care. Begin planning your will when you’re healthy so that, in the event of disaster, you will have a financial power of attorney and a health care agent in place. If you become too ill to make decisions yourself, you’ll need to appoint someone to make those decisions for you.

Rules for Parents of Minors. Minors can own property, but they’ll have no control over it until they turn 18. If parents leave their home to their minor child, the surviving spouse will have issues if they want to sell it. Likewise, if a child is named the beneficiary of a life insurance policy, IRA, or 401(k), those assets will go into a protected account.

Don’t Do It Yourself. This cannot be over-emphasized. It’s tempting to create a will from a generic form online. But this may be a recipe for disaster. If your will is drafted poorly, your family will suffer the consequences. Generic forms found online are just that—generic. Families are not generic. Work with an experienced estate planning attorney to help you address your unique family needs.

Visit the Mastry Law website for a free copy of our report A Parent’s Guide to Protecting Your Children Through Estate Planning.

Reference: Fatherly (February 6, 2019) “How to Write a Will: 8 Tips Every Parent Needs to Know”

What’s the Difference Between Per Capita And Per Stirpes Beneficiary Designations?

A will covers the distribution of most assets upon your death. However, any assets that require beneficiary designations, like 401(k), IRAs, annuities, or life insurance policies, are distributed according to the designation for that account. A beneficiary designation takes precedence over the instructions in a will or trust.

Benzinga’s recent article addresses this question: “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?” Have you changed the beneficiary designations, since the account or policy was first started? If you need to update your beneficiary designation, talk to the company responsible for maintaining the account. They’ll send you a form to complete, sign and return. Keep a copy for your own records.

You should also name a contingent beneficiary to receive the account, in case the primary beneficiary passes away before you can update the beneficiary list. Without a listed contingency, your account designation goes to a default, based on the original agreement you signed and the state law.

With per capita distribution, all members of a particular group receive an equal share of the distribution. Within a will or trust, that group can be your children, all your combined descendants, or named individuals. Under per capita, the share of any beneficiary that precedes you in death is shared equally among the remaining beneficiaries. Within a beneficiary designation, per capita typically means an equal distribution among your children.

Per stirpes distribution uses a generational approach. If a named beneficiary precedes you in death, then the benefits would pass on to that person’s children in equal parts. Spouses are generally not part of a per stirpes distribution.

Assume that you had two children. With per stirpes, if one child were to precede you in death, the other child would receive half, and the children of the deceased child would get the other half.

Create a list of all your accounts that have beneficiary designations and keep it with your will. If you don’t have a copy of the latest beneficiary designation form, write down the primary beneficiary, contingent beneficiary, and the date the beneficiary designation was last updated for each one.

Remember, it’s important to keep both your will and all beneficiary designations up to date.

Reference: Benzinga (December 26, 2018) “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?”

Avoid These Three Big Estate Planning Mistakes

The Street lists the “3 Worst Estate Planning Mistakes and How to Avoid Them.” These are issues that frequently derail an estate plan:

Lack of Information. Unwinding the various pieces of your estate can be a monumental task. Some folks leave this all to chance. They fail to leave their personal representative and loved ones with a complete and updated list of where everything is located and how to get to it.

Think about all the assets you’ve accumulated in a lifetime: real property, brokerage accounts, bank accounts, mutual fund holdings, IRAs, pensions and others. They’re hopefully all protected by a host of user names and passwords and maybe even by the answers to questions, like your first pet’s name.

While things like insurance policies are likely online, some of your holdings are not available electronically. In addition, other possessions are totally digital, and you should guard against cyber-theft and hacking. Create a list of all your user names and passwords for investment accounts and other financial holdings.

Beneficiary Designations Issues. It’s not uncommon for people to forget that they’re required to name beneficiaries for their retirement accounts, annuity contracts and insurance policies. Messing this up is a guarantee that your assets will wind up in probate. It can be an expensive and time-consuming legal process, where your wishes may be disregarded.

Outdated Plans. Sometimes, decades pass after estate documents are signed and put away. In the meantime, divorces and other life events happen, radically impacting the original estate planning objectives. In addition, changes in tax laws might impact your initial intentions. It’s smart to periodically review what is in your will and your beneficiary designations.

Reference: The Street (November 29, 2018) “3 Worst Estate Planning Mistakes and How to Avoid Them”

Do I Have All the Beneficiaries Set Up Correctly on My Assets?

The typical example is an ex-spouse getting all your retirement savings. However, what if you have a child with an opioid addition, you die, and he or she inherits hundreds of thousands of dollars—that vanish in less than a year?

The assets that you own can be passed to your family members in three basic ways: title of ownership is transferred, you name them to inherit assets in your will, or they are the designated beneficiaries named on your various banking and investment accounts and insurance policies.

Many of our assets are transferred through this beneficiary designation, yet we don’t spend enough time tracking and updating these names.

When’s the last time you’ve reviewed your beneficiaries? This question was explored in a recent InsideNoVa article, “Naming Beneficiaries: A Quick Tip to Reduce the Surprise Factor.”

For example, if your checking account is titled in your spouse’s and your name “with rights of survivorship” (WROS), you effectively co-own the account. That one should be all set, at least until the surviving spouse dies.

Your will instructs your executor on the transfer of any assets that aren’t transferred by title or contract. That’s probably at least some of your estate. Therefore, if you don’t have a will, make an appointment with an estate planning attorney to make sure you have this important document.

Next, the beneficiary designation contacts for assets like your retirement accounts, pension plans and insurance policies should be reviewed whenever there’s a major life event, like a birth or adoption of a child, a divorce, or a marriage.

Bigstock-Financial-consultant-presents--14508974Start the process by identifying all the accounts you own, including life insurance policies, annuities, investments, etc. that will pass by beneficiary designation. You should then see who the primary and secondary beneficiaries are for each. You can usually assign percentages to your beneficiaries. Therefore, you could name your spouse as primary beneficiary, 100%. Your children could then be secondary beneficiaries in equal shares.

Some contracts allow you to have your funds be distributed “per stirpes.” In that case, if you name your three children as primary beneficiaries, they each would receive a third. However, if your eldest son dies with you, with per stirpes, his share will go to his children.

In addition, there may be situations when you might designate a trust as a beneficiary. This can get complicated, so work with an experienced trust and estate attorney.

Don’t overlook this detail, as it can have a very big impact, and not always for the good, on your family and loved ones.

Reference: InsideNoVa (October 26, 2018) “Naming Beneficiaries: A Quick Tip to Reduce the Surprise Factor”

More Information Equals A Better Outcome in Retirement Planning

Most people who work for a living dream of retirement. However, for many workers, the idea of retirement comes with its own worries. Will there be enough money? Will I be healthy enough to enjoy it?

Money and health are the two biggest worries about retirement. There are other unknowns: where will we live? How long will we be able to travel? What’s all this about paying estimated taxes, and how does Medicare work? Getting prepared for retirement will be less stressful, says the article “3 Ways to Approach Retirement More Confidently,” from The Motley Fool, if you follow these steps:

MP900398819Start with a budget. The chances are that you don’t know how much money you spend every month. You’re working, money comes in and it goes out. However, if you know how much money you are spending, and what you are spending it on, you’ll be able to have a handle on how much money you’ll need for retirement. You’ll also be able to see where your discretionary dollars are going and make a conscious decision, as to whether those are dollars that should be going into long-term savings for your retirement.

Remember that while some expenses may go down—like commuting—others will stay the same. You won’t be going to the office every day, but you will want to enjoy yourself. What will your leisure and entertainment activities be, and how much will they cost? How will you handle health care costs?  You should also remember that there will be quarterly taxes to be paid.

The more information you can pull together about your spending, savings and unavoidable costs like taxes and health care, the better you’ll be able to plan for this next phase of your life.

How much income will your retirement accounts provide? We tend to focus on how much we need to save, but we should really focus on how much income our retirement savings will generate. How much will your IRA or 401(k) provide on a monthly basis?

Let’s say you’ve saved $500,000 in time for retirement. If you use an annual 4% withdrawal rate, which is the going rule these days, you’ll only have $20,000 a year generated for annual income. If you add Social Security to that amount, you may find that it’s not enough to enjoy the lifestyle you’ve anticipated for retirement. You may find that part-time employment can fill the gap, or you may need to work for a few more years.

Be smart about Social Security. Despite your years of saving, you will likely come to rely on Social Security to pay some of your bills. The smarter you are about your filing strategy, the better positioned you’ll be to maximize your Social Security benefits. If you wait until your Full Retirement Age, you’ll get the full monthly benefit you’re entitled to. If you can hold off claiming your benefits until age 70, you’ll max out as the monthly benefits increase every year you delay claiming.

One of your key resources as you move towards your retirement years will be your estate planning attorney. The process of creating an estate plan will also answer some of your questions about what retirement will bring and planning for aging now will give you a lot more confidence about enjoying your early years of retirement.

Reference:The Motley Fool(September 23, 2018) “3 Ways to Approach Retirement More Confidently.”

Nothing Saved for Retirement? At Least You’re Not Alone

The big picture presented by the National Institute on Retirement Security is not a good one. Working Americans are completely unprepared for retirement.

The National Institute on Retirement Security is a non-profit research and educational organization that focuses on the development of public policies that help retirement security in America. A recent report using U.S. Census Bureau data looked at median retirement account balances for people ages 21 to 64.

MP900404926Think Advisor’s recent article, “Most Americans Have $0 Saved for Retirement: NIRS” says that the report revealed that nearly 60% of all working-age individuals don’t have assets in a retirement account. That’s based on the Census Bureau’s Survey of Income and Program Participation data from the year 2014.

With 59.3% of people not owning a retirement account, a worker in the middle of the overall workforce would have a goose egg in retirement savings. The National Institute on Retirement Security report found that nearly about three-quarters of workers in the 21-to-34 age bracket, over half of those ages 35 to 44, half ages 45 to 54 and also about half in the 55-to-64 age range don’t have a retirement account.

The report included in its definition of retirement accounts employer-sponsored plans like 401(k)s, 403(b)s, 457(b)s, SEP IRAs and Simple IRAs, as well as private retirement accounts—such as traditional and Roth IRAs. In the report’s analysis, an individual was deemed to own a retirement account, if her total retirement account assets were more than zero. There’s a significant gap between older and younger folks in retirement account ownership, and the report found that that this gap is much wider across income groups.

“Individuals with retirement accounts have a higher median income of $51,024, compared to $17,004 among individuals without retirement accounts—three times as large,” the report states.

The research also showed that the median account balances were insufficient, even among individuals withretirement accounts. In fact, for those approaching retirement (age 55 to 64) with retirement accounts, the average balance was $88,000. The report suggested this amount would only provide a “few hundred dollars per month in income if the full account balance is annuitized, or if an individual follows the traditionally recommended strategy of withdrawing 4% of the account balance per year (this amounts to less than $300 per month).”

Digging into the details presents an even more worrisome scenario. A look at working individuals age 21 to 64 who had any retirement savings found that 22% of them had saved less than a year’s income. And among those closest to retirement—ages 55 to 64—only 17% of those who had retirement savings had a year’s worth of income.

Regardless of your age, anyone who is working should be saving something for retirement, even if it is a small amount from every paycheck. The younger you are, the more important it is to start early. For older Americans, the savings target is far more daunting, but saving something is still better than nothing.

Reference: Think Advisor (September 18, 2018) “Most Americans Have $0 Saved for Retirement: NIRS”

How Does Rolling a 401(k) into an IRA Fit into My Retirement Plan?

Whether or not to roll a 401(k) into an IRA when you are changing jobs or retiring early, does not have a simple yes/no answer. There are a number of factors to consider.

If your retirement plan includes retiring before you reach age 59 ½, you may not want to move your 401(k) into an IRA at all. It may be better to move it into your current employer’s 401(k) plan. Moving those funds into an IRA, may limit your withdrawal options in retirement, says Forbes in the article, “Should I Roll My Old 401(k) To An IRA If I Want To Retire Early?”

MP900409252There’s a 10% penalty to withdraw funds from your traditional IRA before 59½, unless you qualify for an exception. However, many people don't know that the IRS lets employees who retire or otherwise leave a company at age 55 or older, to withdraw from their employer's plan without a penalty. Therefore, if you retire at age 55 and roll over your 401(k) to an IRA, you'll have to wait 4½years longer to withdraw your funds without a penalty.

At any age, there will be income taxes to pay on withdrawals. If you have a traditional 401(k), you got a tax break when you invested. Your funds then grew tax-deferred all those years. The IRS now wants to tax your money. When you withdraw from your traditional 401(k), your funds will be taxed at ordinary income tax rates.

There are also some side benefits to staying with a 401(k), instead of opening up a rollover IRA. First, it simplifies your investments. If you roll your 401(k) to your current firm when you switch jobs, you know exactly what your funds are invested in and can check the balance all in one place. It could also protect you from legal judgments. Keeping retirement funds in a company plan, instead of an IRA, will keep it safe.

You should discuss your asset protection strategy with your estate planning attorney.

Remember, not everyone qualifies to invest in a Roth. However, it is possible to contribute to a Roth IRA in a roundabout way, called a "backdoor” Roth IRA. It is complicated and you will need to talk to your tax advisor. Basically, you can open a non-deductible IRA and contribute to it, up to the maximum of $5,500 (or $6,500 if you are over age 50), then immediately convert it to a Roth IRA. Because you haven’t earned any interest, you don’t have any taxes to pay on the conversion.  Now you have a Roth IRA!

However, if you own any other traditional IRAs, you may have to pay pro-rata taxes on the conversion. If you want to try a backdoor Roth IRA, transferring your old 401(k) to your new employer’s plan may be the best way to go.

Speak with an experienced estate planning attorney to ensure that you don’t run afoul of any IRS rules on retirement accounts, if you intend to retire early. Making an expensive mistake could undo your early retirement.

Reference: Forbes (August 31, 2018)“Should I Roll My Old 401(k) To An IRA If I Want To Retire Early?”

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