Tempe Arizona Estate Planning

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There’s really no reason not to have an estate plan, and no reason not to keep it up to date. However, if you are responsible for a family and a home, it becomes even more important to do.

If you have children under age 18, and you don’t have a will, you are choosing to put them in difficult circumstances in the event of your death. According to a Caring.com study conducted in 2017, only 36% of Americans with children under age 18 have a will. Only 42% of all Americans have a will. This leaves children unprotected, and families exposed to all kinds of estate disasters.

USA Today’s recent article, “Estate planning: 6 steps to ensure your family is financially ready for when you die,” explains that if you die without a will, state laws will decide what happens to your property or who should be legally responsible for minor children. That might be OK in some circumstances, but in others, a grandchild with special needs might not receive the resources you want him to have, or an estranged family member might get your house.

For some reason, people believe that if they don't do anything, things will “work out.” They often do not. Here is what you should consider:

Create a will. This document states who should get your money and possessions, as well as who would become a guardian to your minor children, if both parents die.

A living will and powers of attorney. This legal document states what medical procedures you want or don’t want, if you’re incapacitated and can’t speak for yourself, such as whether to continue life-sustaining treatment.  Similarly, powers of attorney let you appoint someone you trust to make legal, financial and health care decisions for you, if you are unable.

Trust. This is a legal entity that holds title to any property you want to leave to your beneficiaries. With a trust, your family won’t have to go through probate and you can avoid having your affairs made public. Trusts also let you set up instructions for how and when property is distributed. You’ll need to name a trustee who will manage the trust. Make sure you let people know, when you’ve designated them as a trustee. Name a secondary trustee, in case the primary trustee cannot or will not serve.

Beneficiaries. If you have investment accounts and retirement plans like a 401(k), make certain that the individual you’ve listed as the beneficiary is the person you want to receive those funds.  Remember to appoint a contingency or secondary beneficiary, just in case.  Under the right circumstances, your trust can be named as the beneficiary of your retirement accounts to provide asset protection to the retirement account principal, but this should only be done under the advice of an experienced estate planning attorney who can help you avoid problematic tax consequences when a trust is not drafted with the correct language.

Get to know an experienced, local estate planning attorney. Trying to use an inexpensive online will service, doesn’t work for every situation. A local attorney is familiar with the law in your state, which governs estate planning, and will get to know you and your family. They’ll be able to give you the help you need, without any surprises. An invalid will created on the cheap, ends up costing far more than a well-designed estate plan.

An estate plan protects you from incapacity when you are living and protects your family when you have passed. Make an appointment today with the Soto Law Firm, if you don’t have an estate plan yet. It’s never too early.

Reference: USA Today (April 1, 2019) “Estate planning: 6 steps to ensure your family is financially ready for when you die”

Are My Retirement Accounts Part of My Estate Plan?

Don’t neglect your retirement accounts, when creating or reviewing your estate plan. Knowing who is named as a primary beneficiary and who is a contingency beneficiary of your retirement accounts is important for your wealth distribution plans, in large part because of tax rules governing the distribution of these assets at death, warns Investopedia in its recent article, “Include Your Retirement Accounts in Your Estate.” Always re-examine your beneficiary designations after major life changes like marriage, divorce, or the birth or adoption of a child.

If you don’t designate beneficiaries for your retirement accounts, the designation may default to your estate. That can be one of the worst possible outcomes for your retirement accounts, from a tax and planning standpoint.

If your estate is named as beneficiary, your heirs have to wait until the probate process is complete, before they can access your retirement funds. Be sure to name an individual or a trust as your beneficiary. Each state may have a different requirement concerning who you can name as a beneficiary. For example, the federal ERISA law requires you to name your spouse as the beneficiary of your 401(k) account, unless he or she gives permission in writing to name another person or charity. Talk to an estate planning attorney in your state.

Another option is to include a trust in your estate planning, instead of distributing retirement funds directly to specific individuals. This gives you more control over the distribution and protects your heirs from additional paperwork and taxes. If you want to leave the assets in your retirement accounts to a relative who you think won’t manage the funds well, you can use a trust to provide a third party to be the trustee of their trust share and ensure regular distributions from those accounts. The third party trustee will keep a beneficiary from tapping into their inheritance and spending it all at once.

A trust is also a good choice, if your beneficiaries are minor children who cannot have direct access to the money until they become legal adults. All that noted, however, very careful planning must be done to avoid unintended consequences, when designating a trust as beneficiary of retirement funds. Otherwise, you may actually trigger unnecessary taxation and lose the ability for the trust beneficiaries to “stretch” their distributions as long as the law allows.

Required Minimum Distributions (RMDs). Your retirement plans have rules about when you must begin taking distributions, known as required minimum distributions. For accounts like a 401(k), you are must start taking RMDs at age 70½. However, if you die and leave retirement plans and accounts to your heirs, the rules apply to them, and they can get pretty complicated. A spousal beneficiary can roll over retirement funds (tax-free) into his or her own retirement plan and make their own distribution choices. However, other beneficiaries don’t have the same option. Learning how the tax treatment and distribution options vary based on who’s receiving your retirement assets is a crucial part of the overall estate planning process.

In addition, some beneficiary designations may qualify for the stretch IRA provision. This lets them withdraw their inherited retirement plan assets over the course of their lifetime—or they may be required to withdraw the entire balance within five years of your death. Who your beneficiary is and determining what distribution rules apply to that person, can make a big difference in how much of your retirement assets are actually passed on to your intended beneficiaries.

Taxes. The biggest worry to address when designating retirement accounts as part of your estate plan is how they’ll be taxed. Retirement accounts are some of the most heavily taxed assets you can pass on after your death. When reviewing your financial and estate plans, find out how you can withdraw from these accounts while you’re alive and how to minimize tax consequences to your beneficiaries after you’re gone.

The overall goal is to create an estate plan that has the least adverse tax consequences. An estate planning attorney can help you gain a clearer understanding of both the legal requirements of your estate plan and how to ensure that your retirement accounts are distributed in the most tax and asset protection efficient manner.

Reference: Investopedia (August 27, 2018) “Include Your Retirement Accounts in Your Estate”

Retirement Accounts as Part of Your Estate Plan

It’s easy to focus on your home and personal possessions when doing estate planning, but your retirement accounts might constitute the majority of your assets. The rules are different for this class of assets, so work closely with an advisor to make sure retirement accounts are aligned with the rest of your estate plan.

Think back to when you started your retirement savings, with your first IRA—maybe at your very first job. Has that account moved with you to a few jobs? Or did you convert it to a Roth IRA at some point? How about the first life insurance policy you ever bought? You may not remember doing this, but every time you opened certain accounts, you named someone to be the beneficiary of the accounts at your death. If you haven’t reviewed those beneficiary designations or can’t remember who was named, it’s time to address this part of your estate.

Investopedia’s recent article, “Include Your Retirement Accounts in Your Estate,” gives us some things to consider in the New Year.

 

Beneficiary Designations. Review your beneficiary designations after major life changes. If you fail to make these designations, the funds will most likely go into your estate—a horrible outcome from a tax and planning perspective. If your estate is named a beneficiary, your heirs must wait until probate is finished to access your retirement accounts. It is usually better to name an individual or a trust as your beneficiary.

Protecting Retirement Funds With a Trust. Another option is to include a trust in your estate planning, instead of giving your retirement funds directly to named individuals. This allows you more control over the distribution, while protecting your heirs from lawsuits or creditors. Trust distributions keep a beneficiary from accessing and spending their inheritance all at once. It’s also a good idea if your beneficiaries include minor children who shouldn’t have direct access to the money until they are adults. Be sure to consult with an estate planning attorney, because there are tax and other complexities associated with designating a trust as beneficiary.

Required Minimum Distributions (RMDs). Your retirement plans have rules about when you are required to start taking distributions. For 401(k) accounts, you are required to start taking RMDs at age 70½. However, if you die and leave retirement plans and accounts to your heirs, these rules apply to them instead. A spousal beneficiary can roll over your retirement funds tax-free into their retirement plan and make their own distribution choices. However, other beneficiaries don’t have the same option. Tax treatment and distribution options vary, depending on who is receiving your retirement assets.

Tax Considerations. The biggest worry you need to address when designating retirement accounts as part of your estate plan, is how they’ll be taxed. Consider how to withdraw from these accounts while you’re alive and how to minimize tax consequences after you’ve passed.

You’ll want to be sure that these accounts are integrated with your overall estate and tax plan. That will best be done with an experienced estate planning attorney. They’ll make sure your assets are distributed the way you want and address any possible opportunities to minimize your tax liability.  At the Soto Law Firm, our experience estate planning attorneys will counsel with you to establish a customized estate plan that matches your family goals.  Contact us today for a free consultation.

Reference: Investopedia (August 27, 2018) “Include Your Retirement Accounts in Your Estate”

 

Money Basics for the “Seasoned’ Adult

If you’re in your 50s or 60s, things may be looking good. Your nest egg is growing, the kids are out of college and your life is moving into pre-retirement years. Now is the time to make that big push to make the most of your earnings, before it’s time to relax.

If you’re looking for the bright side of turning 50, here’s one: you are now eligible to make catch-up contributions to retirement accounts. You can add $1,000 to an IRA or a Roth IRA, and an extra $6,000 to your 401(k). That could ramp up your retirement accounts to as much as $61,000 in a solo 401(k). Just be aware that the $61,000 limit is for all of your 401(k) accounts ever year.

Two Cents’ recent article, “What to Know About Money in Your 50s and 60s,” adds that if your kids are out of the house and that house is maybe even paid off (or close to it), you can move some of that extra savings toward your retirement accounts. According to Forbes, even $1,000 extra in an IRA can make a huge difference, if you contribute it every year between 50 and 67.

 

For example:

• 5% annual return: $26,000
• 7% annual return: $31,000
• 10% annual return: $41,000

To see if you’ll have enough retirement savings, take your total income…

• Less any contributions to retirement accounts
• Less any expenses that will go away in retirement
• Plus, any added expenses you’ll have when you’re retired
• Less taxes (estimate high, as taxes will likely to go up, not down)

That gives you your rough total.

If it’s a long way from the budget you’ve been living on, dig deeper and you can see where to make improvements.

Your 50s are the critical time, when preparing for retirement. Review your savings to see the mix of tax categories on your investments: pre-tax, post-tax, and tax-free.

If you have almost all your savings in pre-tax accounts, which decreases the flexibility to pay for retirement, consider building up after-tax and tax-free savings, so you have more flexibility once you retire. This may include investing in a Roth IRA. Consider a backdoor Roth conversion, if you make too much to contribute to a regular Roth. If you’re taking qualified withdrawals (the account’s been open for at least five years and you’re 59½ or older), then your taxes won’t be impacted in retirement, which can be a helpful strategy.

Next, if you’ve made a will already, you should check to ensure that you’ve titled your assets properly. For example, on a bank or brokerage account, you can add beneficiaries to that account, called a Transfer on Death (TOD). This works the same as adding beneficiaries to an IRA account or a retirement plan. Titling your assets properly, lets you avoid probate. It’s a faster and cheaper transfer.

Your 50s and 60s are also the time to start looking into Social Security benefits. You know that waiting until age 70 will maximize your monthly benefit, but your circumstances may dictate an earlier need for benefits. Make this decision thoughtfully, as the repercussions may last decades.

And if you haven’t already had an estate plan created, or if your will hasn’t been updated since the last kid moved out of the house, make an appointment with an estate planning attorney. There have likely been changes in your life, including family changes. You may want to setup a trust for a new grandchild or update your healthcare directive to reflect a marital change.

Contact the Soto Law Firm today to get started on or update your estate planning with an an experienced attorney.

Reference: Two Cents (August 17, 2018) “What to Know About Money in Your 50s and 60s”

 

Four Fast Financial Fixes

Some financial tasks take a long time, so we put off doing them until they become bigger in our minds than they are in reality.  However, in one hour, you can actually get a lot of good stuff done.

You know how setting up a system that is intended to save you lots of time always takes less time than you thought?

The Washington Post’s recent article, “Got an hour? Chalk up 4 quick financial wins,” gives us a couple of financial tasks that could save you a lot of money and stress in the future. Each of these can also be accomplished in 15 minutes or less, once you’ve decided on a plan and have your information ready.

Adjust Your Withholding. With the tax reform legislation passed last year, you should look at the new tax brackets and the elimination of deductions. It could mean that you’re withholding too much or too little. Don’t wait for April for an unpleasant surprise: do this now!

Draft Powers Of Attorney. You should have at least two estate planning documents. You grant the authority to those you name to make decisions for you, if you become incapacitated. With a medical power of attorney (also known as an advance health care directive), name your toughest advocate—the person who’s devoted enough to carry out your wishes and stand up to doctors or any of your relatives who disagree. With a financial power of attorney, you designate the individual who’s good with money and extremely ethical.  You should also name backups to both positions.

Start College Saving. If you have children, they’re going to need some schooling or post-secondary training to succeed. Consider a state-run 529 college savings plan to save. You don’t have to use your own state’s plan, so if you don’t qualify for a tax benefit in your own state, look at one of the plans Morningstar named as best in the country. These were Illinois’ Bright Start Direct-Sold College Savings Program, Nevada’s The Vanguard 529 College Savings Plan, Utah’s my529 and Virginia’s Invest529 plan.

Roll Over A Retirement Account. Is your current 401(k) plan better than the one you had at your old job? If so, ask if they’ll accept a rollover from the previous account. Ask for help and let them guide you through the process so you don’t make any expensive mistakes.

Don’t overlook another option. You are allowed to roll that old 401(k) into an IRA, which may have more investment options.  You should also ask for help with these transactions. They can be complicated, and mistakes can be costly.

Reference: Washington Post (September 10, 2018) “Got an hour? Chalk up 4 quick financial wins”

 

What Exactly Does “Cost Basis” Mean to Heirs?

What Exactly Does “Cost Basis” Mean to Heirs?

The terms “cost basis” and “stepped up cost basis” are used extensively when discussing real property, investments and other inherited assets. What do they mean?

If you are a beneficiary in Arizona you inherit your family home and a handful of taxable accounts, your inheritance is valued at the fair market value on the day of the decedent’s death. There is no estate tax in Arizona, there is no inheritance tax on these assets.  However, you’ll need more details before you know what you’ll be inheriting.

nj.com’s recent article asks, “How will your inheritance be taxed?” The article explains that typically, the fair market value on the date of the decedent's death is almost always more than the decedent's cost basis. As a result, it’s called a "stepped-up" basis and it’s possible the basis could be lower.

Because of the step-up in basis, if you sell the property right after death, there’s typically no income tax consequence. The gain you’d report on the sale is the sales price minus selling expenses, less the fair market value of the property at the date of death.  In Arizona, due to favorable community property laws, spouse who own property as community property can receive a full step up in basis at the first spouses passing, and then a second step up in basis at the survivor’s passing.

As far as investment accounts, the new basis of a security is calculated by taking the mean of the high and low price of the security on the date of death, rather than the close price. Let’s say that the decedent passed away over a weekend. The date of death value is determined by taking the average of:

• the mean of the high and the low value on Friday; and
• the mean of the high and the low value on Monday.

The financial institution will usually give you the investment’s value.

For taxable estates, rather than using the date of death, an alternate valuation date (the date six months after the date of death) can be chosen. In that instance, it must be used to value all of the assets as of that date. You can’t elect date of death value for some assets and an alternate value for others.  The IRS also requires consistency in reporting. The basis utilized by the beneficiary as the value of the property received from the decedent, can’t be more than the value of the property reported on the decedent's estate tax return.

For any retirement accounts other than Roth IRAs, income tax must be paid when distributions are made to the beneficiary—like it would have had to be paid on distribution to the decedent. The value of the retirement account in the decedent's estate and/or passing to the beneficiary isn’t reduced by the income tax that will have to be paid on future distributions.

Here’s the difference: if the property is gifted to you, that’s when you obtain the donor’s basis in the property. If you sell the property after you receive it as a gift, it’s more likely that you will have to pay income tax on it, than if you inherited it.

If possible, sit down with an estate planning attorney well in advance of any gift or inheritance and map out the best way to handle the transfer of property.  Contact the Soto Law Firm today for a free consultation to find out how to ensure the most favorable tax consequences for your beneficiaries.

Reference: nj.com (July 11, 2018) “How will your inheritance be taxed?”

Why Do I Need to Name a Beneficiary for My 401(k)?

It won’t matter what your will says about any accounts or assets that have a designated beneficiary. The named beneficiary will receive the asset on your death.

What happens if you don’t spend all of the money in your 401(k) plan, before you pass away? Your retirement savings will go to the person named as the beneficiary on the account, as noted in a useful article from U.S. News & World Report, “How to Pick a Beneficiary for Your 401(k) Plan.” By naming a beneficiary (and a contingent beneficiary), your heir will receive those funds without having to go through probate or wait for your estate to be settled.

It’s not uncommon to name a spouse, child, or other relative as a beneficiary. If you want to leave the assets in your 401(k) plan to someone other than your spouse, he or she may need to sign a spousal consent form. You can name several primary beneficiaries and have the assets split equally among them, or assign a specific percentage of the account to each person. If you name multiple primary beneficiaries and one dies before you, the assets will be split proportionally among the remaining primary beneficiaries.

A contingent beneficiary receives the 401(k) assets, if all of the primary beneficiaries are deceased. List each beneficiary separately and the percentage of assets that will go to each person.

If you fail to designate a beneficiary, or your primary and contingent beneficiaries die before you, your surviving spouse will usually inherit your 401(k) assets. If you don't have a spouse or living beneficiaries, the funds in your account are typically moved into your estate.

Remember to update your beneficiary designations, after major life events. When you marry, you typically change your beneficiary to your spouse. Divorce or remarriage is another reason to change your beneficiary designations.

If you plan to leave your retirement account balance to your children, you need to update your beneficiary form upon the birth of each child.  It is even better to create a specially-designed Trust to receive the retirement plan distributions on behalf of your children, especially when they are minors.  A Trust can avoid a myriad of problems associated with naming minors as beneficiaries of a 401(k): no conservator need be appointed by a court to be in charge of those assets for your minor children until they reach 18 years of age, you can name a responsible person who you trust to take care of your minor children’s inherited assets rather than one being chosen by a court, and you can pick which age, if any, your children would receive or be in charge of those inherited assets, rather than receiving all of those funds outright at age 18.

I properly designed trust can also allow your children to stretch out the required minimum distributions from an inherited 401(k) over their life expectancies, which also allows the principle to grow over that time, rather than having to take the required minimum distribution out over a mandated shorter period of time.

Beneficiary forms are unique to each 401(k) plan, so if you have numerous 401(k) accounts, you need to update all of them. You may consider consolidating your old 401(k) accounts or rolling them over into an IRA to make your beneficiary designations and investments easier to manage. Many 401(k) plans allow you to update your beneficiaries online.

Bottom line, make sure that you have completed your 401(k) beneficiary designations to help your beneficiaries avoid possible disastrous consequences down the road.  During that process it is invaluable to sit down with an experienced estate planning attorney to discuss your options and to determine which decision is right for you.  Contact the Soto Law Firm today for a free consultation to discuss your options and how to properly plan for your 401(k).

Reference: US News & World Report (July 2, 2018) “How to Pick a Beneficiary for Your 401(k) Plan”

Late to the Retirement Party? You Can Still Catch Up

It will take discipline and serious belt-tightening, but if you haven’t saved for retirement, you can still recover.

More than 30% of workers in America ages 45-54 report having saved less than $25,000 for retirement, according to the Employee Benefit Research Institute. It gets more dramatic: more than 25% of those who are 55+, say they have even less than $25,000 saved. If you fit into any of these categories, you are not alone.  However, you do have some significant work ahead of you.

CNN’s recent story, “3 ways to recover from a late start on retirement planning,” says that your situation isn't hopeless. You still have time to significantly improve your retirement prospects, if you begin taking serious steps now. Consider the three most important things you need to do:

1. Start saving! You need to make a major course correction in your finances that will mean major lifestyle adjustments. If you do make the commitment to save, you can still put together a pretty sizeable nest egg in the later part of your career. Look at doing most of your saving in an employer-sponsored plan like a 401(k). It has tax advantages, generous contribution limits ($18,500 this year, plus a $6,000 catch-up contribution for people 50 and older) and makes saving easier by automatically transferring money from your paycheck to your account. If you don't have access to a 401(k), you can start an IRA, which allows you to deposit $5,500 a year, plus an extra $1,000 for people 50 and older. The sooner you start and the more you put away, the better your odds of having a secure retirement.
2. Keep working. In a recent study titled "The Power of Working Longer," retirement researchers found that delaying retirement and continuing to work can be one of the most effective ways of raise your post-career standard of living—and can be better than increasing your savings rate. Staying in the workforce lets you delay claiming Social Security. You can then qualify for a bigger monthly Social Security check in the future. You’ll also have more years to save for retirement, and your nest egg has more time to grow before you use it.
3. Be open to new ways of building security. Depending on how far behind you are, it is possible that you simply may not be able to work more years or to save enough to catch up. If that is the case, you’ll need to be flexible and resourceful. You may need to sell your home and move to a smaller place, or to move to a region of the country with a lower cost of living. You might need to take out a reverse mortgage or get a part-time job that won’t be too physically taxing.

Another aspect of retirement, is gaining the peace of mind that come from planning for the ultimate disposition of your assets after you have passed away.  Planning for your children and grandchildren by providing them asset and divorce protection through a trust can bless their lives not only at the time they inherit your assets but for many years to come.  Contact the Soto Law Firm today to discuss how estate planning can help you achieve more peace of mind during your retirement years.

Reference: CNN (June 21, 2018) “3 ways to recover from a late start on retirement planning”

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How Baby Boomers and Entrepreneurs Put Their Retirements at Risk

Is starting a business part of your retirement dream? Many boomers start a passion-fueled business during retirement, thinking they’ll earn big bucks, while finally doing what they’ve always dreamed of.

The number of boomers launching businesses is on the rise, with boomers now twice as likely to plan on starting a business as millennials, as reported by the Kaufman Foundation. The one thing they both have in common: putting retirement savings on a back burner.

US News & World Report’s recent article, “7 Reasons Entrepreneurs Don't Save for Retirement,” examines some of the biggest mistakes entrepreneurs make when it comes to retirement planning.

1. No plan. Some business owners say they’re just too busy to plan, whether it's business planning, estate planning or financial planning. About 34% of small businesses owners don't have a retirement savings plan, according to a 2017 survey of 1,960 small business owners by Manta, an online resource for small businesses owners. However, setting up a retirement account offers benefits like tax breaks and the ability to earn compound interest.
2. Putting everything back into the business. Entrepreneurs won’t put their money into retirement because they worry they’ll lose quick access if they need it for the business. However, diversifying your assets can help you to better handle emergencies and save for the future.
3. Believing that the sale of the business is the retirement plan. Most entrepreneurs overestimate the value of their business and their ability to sell it, when they’re ready to retire. It may not be that easy. Plan with your head and not your heart—take the emotion out of it, and plan conservatively.
4. Poor business structure. Some entrepreneurs begin as sole proprietors and remain sole proprietors. However, not structuring your company as an LLC, can put your personal assets at risk. That can put your retirement at risk.
5. Not diversifying. If most of your net worth is in the business, you should seek out low risk investments for money outside the business and be sure to contribute to your own retirement plan, besides investing in the business.
6. Failing to save. Business owners can save up to 25% of their compensation or $55,000, whichever is less, in a SEP-IRA in 2018.
7. Funding a new business with retirement savings. Starting a business is a risky venture. Using retirement funds later in life, could lead to a financial disaster. If the business does not succeed, you are not likely to be able to make up a lifetime of savings, investment growth or interest income during retirement.

Business owners and entrepreneurs sometimes may also fail to plan for future problems such as who will run my business if I become incapacitated, or how can a trusted agent access my retirement accounts for my benefit when I am incapacitated.  Coordinating your business and retirement plans with your estate plan can avoid costly problems such as a conservatorship that my erode your retirement plans and savings that have been set aside for your later years.  Talk to an estate planning attorney today at the Soto Law firm to learn more about how a Financial Power of Attorney and ownership of your business through your trust can help you avoid these complications.

Reference: US News & World Report (May 11, 2018) “7 Reasons Entrepreneurs Don't Save for Retirement”

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Can You Name a Charity as the Beneficiary of a Retirement Account?

You can accomplish the same thing two different ways: by naming a charity as the beneficiary of an IRA, or making the IRA a POD, the charity will receive the funds directly after you pass.

When you decide to gift your retirement account to a charity, it is recommended to speak with an estate planning attorney in order to avoid  future complications. If you designate a charity as the beneficiary of your IRA, when you pass away, a representative from the charity can claim the donation once the IRA custodian has confirmed your death.  By directly naming the charity through the IRA custodian’s beneficiary designation forms, the donation is transferred directly without the need for probate.

After the asset owner dies, the charity will contact the bank or IRA custodian and complete the required forms to claim the funds. A death certificate will again be required at that time.

Since the charity was named directly as a beneficiary, it won’t be necessary for it to go through probate to claim the IRA benefits.  Naming the charity directly as the beneficiary of an IRA also avoids income taxes that would have to be paid if an individual were named directly on such an account.  Because there are many income tax and estate tax issues involved in this decision it is smart to sit down with an estate planning attorney to discuss the best options that will accomplish your goals.

Another important tip: the retirement account owner should tell the charity that it has been named as a beneficiary.

Similarly, most banks offer a Payable-on-Death (“POD”) or “Transfer on Death” (“TOD”) option for most accounts they manage. A POD or TOD bank account is another easy way to keep money out of probate. All a person must do is properly complete the bank’s POD or TOD forms to indicate whom they want to inherit the money in the account or certificate of deposit at the death of the owner of the account.

The bank transfers ownership of the account to the named beneficiary, be it a charity or individual, once the bank receives confirmation of the owner’s death.  This process circumvents the need for probate.

The Houston Chronicle’s recent article, “A charity can be named beneficiary of a retirement account,” explains that designating a beneficiary on a retirement account and designating a person as the POD beneficiary, both accomplish the exact same thing.

However, most people don’t realize that this solution will no always avoid probate.  If a charity no longer exists, or if an individual does not survive the account owner, then a probate may be required to pass the bank account or IRA to the proper beneficiaries.  Similarly, if the account owner becomes incapacitated, having a financial power of attorney in place can allow a trusted agent to step in for the account owner to perform needed transaction or distribute money on their behalf, and will avoid the need for a costly conservatorship to appoint that agent. 

At the Soto Law Firm, we guide clients through the estate planning process and help them understand the best ways to organize their assets and beneficiary designations to avoid incapacity and conservatorship issues, and be assured that their assets will avoid probate after they are gone.  Call us today for a free consolation to learn more about your options.

Reference: Houston Chronicle (May 7, 2018) “A charity can be named beneficiary of a retirement account”