Tempe Arizona Estate Planning

How to Build an Estate Plan When Beneficiaries Aren’t Up to the Task

Not everyone is ready to receive an inheritance. Some are too young, others are elderly and vulnerable, while still others can’t manage large sums of money. That’s what trusts and good estate plans are for.

If you have to think twice about an heir’s suitability for an inheritance, then you should be talking with your estate planning attorney. There are ways to allow heirs to benefit from your generosity, without putting themselves or their inheritance at risk.

A recent Kiplinger article asks: “Is Your Beneficiary Ready to Receive Money?” In fact, not everyone will be mentally or emotionally prepared for the money you wish to leave them. Here are some things to consider:

The Beneficiary’s Age. Children under 18 years old cannot sign legal contracts or own property. Without some planning, the court will take custody of the funds on the child’s behalf. This could occur via custody accounts, protective orders, or conservatorships. If this happens, that child's parent has little control over how the money will be used. The conservatorship will usually end, and the funds be paid to the child, when they become an adult at age 18. Giving significant financial resources to a young adult who’s not ready for the responsibility, often ends in disaster. Working with an estate planning attorney will allow you to find a solution to avoid this result.

The Beneficiary’s Lifestyle. There are many other circumstances for which you need to consider and plan. These include the following:

• A beneficiary with a substance abuse or gambling problem;
• A beneficiary and her inheritance winds up in an abusive relationship;
• A beneficiary is sued;
• A beneficiary is going through a divorce;
• A beneficiary has a disability; and
• A beneficiary who’s unable to manage assets.

All of these issues can be addressed, with the aid of an estate planning attorney. A testamentary trust can be created to make certain that minors (and adults who may not be ready) don’t get money too soon, while also making sure they have funds available to help with school, health care, and life expenses.

Who Will Manage the Trust? Every trust must have a trustee. Find a person who is willing to do the work. You can also engage a professional trust company in situations where you don't have a trusted friend or family member who can perform this task. The trustee will distribute funds, only in the ways you’ve instructed. Conditions can include getting an education or using the money for a home or for substance abuse rehabilitation.

Estate Plan Review. Review your estate plan after major life events or every few years. Talk to a qualified estate planning attorney to make the process easier and to be certain that your money goes to the right people at the right time.

Parents and grandparents are advised to stay in touch with their potential heirs, whether they are living nearby or far away. If you created a will or trust when heirs were young, their lives, values and priorities have no doubt changed. The wild adolescent may have matured into a kind and generous individual, or the most responsible kid you ever knew might have become ensnared in a dangerous relationship.

Your estate planning attorney will make the process easier, even if there are some changes to be made. Stay in touch and make sure that your gifts go to the right people, at the right time.  

Reference: Kiplinger (April 1, 2019) “Is Your Beneficiary Ready to Receive Money?”

What are Benefits of Using a Trust, Instead of a Person as IRA Beneficiary?

The question is simple. The answer is not. This is an area where you’ll need to rely on a very experienced professional, since the rules for using a trust as an IRA beneficiary are extremely complex.

In the right situation, and when handled with great proficiency, there can be advantages to naming a trust instead of an individual as a beneficiary of an IRA. However, before putting what may well be your largest asset at risk, make sure that the person who is helping you is well-educated and up-to-date on the latest tax laws. A mistake here could leave your heirs with an unexpectedly large tax bill.

Investment News’ recent article on this subject asks, “Should you name a trust as an IRA beneficiary?” The article explains that individual retirement account assets can't be put into trusts directly during a person’s lifetime without destroying the IRA's tax deferred structure. Therefore, a trust may only be named as the beneficiary of the IRA. The trust would inherit the IRA upon the owner’s death, and beneficiaries of that trust would have access to the funds.

Asset protection is the main rationale for making this move because trusts shield IRA assets from lawsuits, business failures, divorce, and creditors. Taxpayers enjoy state and federal protections for IRA assets during their lifetime. However, heirs who inherit an IRA directly—not through a trust—don’t receive those protections unless provided by state law. Trusts also allow for some control over the assets. The terms of a trust can stipulate the way in which distributions are made if an heir is a minor, disabled, financially unreliable, incapacitated or vulnerable.

Naming a trust as an IRA beneficiary may not be practical for people who plan to bequeath their IRA to a spouse, rather than their children, grandchildren or others. Spouses are allowed roll over the decedent's IRA assets into their own IRA tax-free.

There are many technical rules to follow, like the IRA beneficiary form must indicate before a person’s death, that the trust is the primary beneficiary. After death, the IRA must be retitled as an inherited IRA. Required minimum distributions (RMDs) would still also be required to be taken by the IRA beneficiaries following the principal's death, regardless of whether the principal was taking RMDs or not. This is an area where using the right type of trust is important. A "see-through" or "look-through" trust may be the best bet.

Structuring a trust as a "see-through" or "look-through" Trust maintains preferential tax treatment, by allowing a trust beneficiary to spread the RMDs over a long period based on his life expectancy. This is called a “stretch IRA.” The RMD amount would be based on the oldest beneficiary of the trust. However, beneficiaries with separate trust shares would have different RMDs.

In addition, the trust's language must also state that distributions from the IRA can only go to "designated beneficiaries," not to pay expenses. The risk of not creating the trust as a see-through or including the proper trust language is that the IRA assets are distributed and the resulting tax paid within a much shorter time frame—potentially five years.

Trusts may also be set up as "conduit" or "accumulations" trusts.  As was already mentioned with  a conduit trust, the annual RMDs pass through the trust to beneficiaries, who pay tax at their individual rates. Accumulation trusts don't distribute the RMDs out of the trust and pay tax at the more punitive trust tax rates. However, they keep the most post-death control over assets.

Taking this approach may require the input from several of your advisors. Speak with your estate planning attorney, CPA, and financial advisor to gather information from three independent sources to ensure that the IRA and heirs are protected.

At the Soto Law Firm we can help you make the best decision for your family based on your goals and asset values.  Contact us today to schedule a free consultation to discuss your estate plan and retirement accounts.

Reference: Investment News (February 22, 2019) “Should you name a trust as an IRA beneficiary?”

Celebrities’ Larger Than Life Estate Snafus

Who doesn’t love to learn about the inner lives of celebrities? We live vicariously through articles devoted to the rich and famous. However, when they die and leave a mess behind, we should pay attention to what they did wrong.

In the article “Yes, even celebrities make estate planning mistakes,” the Reno Gazette Journal takes a close look at four big estate planning mistakes we should all avoid. These are such basic estate planning mistakes that you’d think no one would make them!

You don’t have a will. Your affairs should be properly handled, and your family should be protected, when you pass away. However, neither singers Aretha Franklin nor Amy Winehouse had a will. Franklin left behind four sons with some financial issues. Amy didn’t take the time to plan either. She didn’t say how she wanted her $6.7 million estate to be distributed. Without any written instructions, her estate went through probate and was distributed to her parents. The primary purposes of a will are to designate the guardians of minor children, appoint an executor of your estate, and to determine which beneficiaries are to get what assets.

Not considering a trust. Who wants to be a celebrity when it comes to private matters? Remember that a will is a public document, and anyone can go to the courthouse and look it up. However, with a living trust, your wishes remain private. Learn from the saga of the late Whitney Houston, who died at age 48. First, her will named her daughter Bobbi Kristina Brown as sole beneficiary. However, then her daughter died three years later at age 22. Houston’s estate was then involved in a battle with the IRS over the valuation of recording royalties and was assessed a tax bill of $2.2 million. To top it all off, her ex-husband Bobby Brown, ironically may be the heir of the Houston estate.

A living trust can help your estate plan remain private and away from others. It names who is entitled to your assets and how they are to get them. A trust names trustees, who are in charge of trust assets. It also may provide estate tax benefits. If you look at Whitney Houston’s situation, a living trust may have helped by providing guidance to daughter Bobbi, after her mother’s death.

Failing to update your estate plan. We all experience changes throughout our lives. This includes finances, health, family dynamics and relationships—any one of these can mean it’s time for an estate plan review with your attorney. Look at the late Michael Crichton, the author of Jurassic Park, who was diagnosed with throat cancer, when his sixth wife was pregnant. Crichton failed to update his estate plan to include his soon-to-arrive son. His wife sued to include the baby as an heir, and Crichton’s daughter from a prior marriage opposed. The judge ruled the baby could inherit. Crichton could have saved everyone a lot of stress, anguish and money, by simply updating his estate planning documents.

Failing to plan for disability before death. You should also think about planning for the possibility of being disabled and needing assistance in managing your affairs. Ask your estate planning attorney about powers of attorney and living wills to help protect you and your loved ones, in case of incapacity. For example, the final years of blues singer Etta James, known for “At Last” and “Tell Mama,” were full of court hearings. The legal battle was between her husband of 42 years and her son from a prior marriage. Etta signed power of attorney over to the son in 2008, but her husband claimed that she suffered from dementia and was incompetent. Her son wanted to restrict the amount of money Etta’s husband spent for her medical care. They settled, and the husband was named as conservator. However, he was limited to $350,000 for medical care for his wife. Etta James passed a short while later.

So you’re not famous and don’t have a room with gold records and Emmy statues? That doesn’t matter so much as you might think. Make your kids proud not because you are a global star, but because you took the time to meet with an estate planning attorney and protected your family. Contact the Soto Law Firm today to set up a free initial consultation to get the process started.

Reference: Reno Gazette Journal (November 14, 2018) “Yes, even celebrities make estate planning mistakes”

Top Five Estate Plan Epic Fails

The problem with mistakes to an estate plan, is that many are irreversible and cannot be fixed. Those that can be fixed are often expensive. It is best to do it right the first time.

Many of the top reasons for estate plans to fail, are a matter of maintenance. Just as your home or car needs ongoing care, so does your estate plan. The simple things often lead to the biggest problems.

Investopedia’s article, “5 Ways to Mess Up Estate Planning” gives us a list of these common issues.

Not Updating Beneficiary Designations. Be certain those to whom you intend to leave your assets are clearly named on the proper forms. Whenever there’s a life change, update your financial, retirement, and insurance accounts and policies, as well as your estate planning documents.

Forgetting Key Legal Documents. Revocable living trusts are the primary vehicle used to keep some assets from probate. However, having only trusts without a will can be a mistake—the will is the document where you designate the guardian of your minor children, if something should happen to you and/or your spouse.

 

Bad Record Keeping. Leaving a mess is a headache. Your family won’t like having to spend time and effort finding, organizing and locating your assets. Draft a letter of instruction that tells your executor or personal representative where everything is located, the names and contact information of your banker, broker, insurance agent, financial planner, attorney, etc. Make a list of the financial websites you use with their login information, so your accounts can be accessed.

Not Funding Your Trust.  A Trust can be thought of as a legal container into which you fund your assets during your lifetime.  Your trust then controls your assets in the event of disability or death.  Just like a shiny new car, a new trust is a great thing to have, and just like a car that won't be going anywhere without gas in the tank, your assets are the fuel for your trust.  If you don't properly fund, coordinate, or re-title assets into the trust, it will be much more difficult to get where you want to go.   You should also keep up to date with funding as you sell or acquire new assets.  Keeping your trust properly funded is a moving target that needs to be constantly reviewed and kept up to date.

Not Creating a Plan. This last one is one of the most common. There are plenty of stories of extremely wealthy people who lose most, if not all, of their estate to court fees and legal costs, because they didn’t have an estate plan.

The solution is simple: make a recurring appointment with your estate planning attorney every two or three years, or when something big in your life changes. Follow through on the instructions, like funding a trust or talking with heirs about your thought processes for asset distribution.  Contact the Soto Law Firm today to make sure that your estate plan will be an epic success.

Reference: Investopedia (September 30, 2018) “5 Ways to Mess Up Estate Planning”

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”

Everyone Needs an Estate Plan

Now that the holiday season is over, it’s time to get back to business—and that includes making sure you and your loved ones have your estate plans all set.

If you’ve got older parents or relatives, says Fox 5 NY in its article “Why estate planning is important regardless of your age or wealth,” you’ll need to start having conversations with them about their estate plan. Don’t neglect your own, because whether you’re rich or poor, everyone needs an estate plan.

How can you have a successful conversation, without making your family members feel uncomfortable? The key to a successful discussion depends upon the right approach.

Try to always make suggestions, rather than demands. One great way to start the conversation with family members, is to mention what you're doing. You might say something like, “I just took care of my own estate planning. Have you done anything? Maybe we should talk about it.” That might get the conversation rolling.

Many people believe that, as they get older, they need a will. However, that’s just one piece of the puzzle: core estate planning includes a will, power of attorney, health care power of attorney, and asset protection.

For most of us, the asset we most want to protect is our home. Many individuals choose to re-title their primary residence into their revocable trust, which would allow an incapacity trustee to sell the primary residence if the individual needed to be admitted to a nursing home for incapacity purposes.   Owning your home through your trust also avoids probate in the event of your passing, so that the house itself or the equity therein can pass to your beneficiary in a much more private and efficient manner.

You also need to find people you trust to help with finances and health care. A power of attorney is a legal document in which you grant a person the authority to handle finances on your behalf.  Similarly, a healthcare power of attorney is an individual who makes healthcare decisions, if you get sick or are in an accident and can't make decisions for yourself.  You can use one person to do both or separate individuals for each role. You can opt for a family member or a trusted friend. However, either way it should probably be a younger person, who won't be dealing with the same aging issues as you.

Some people think that a will is the only thing they need as it is usually more inexpensive than a trust, but what they don't realize is that a will can be more expensive in the long-run if their estate has to go through probate.  Probate is triggered when their are assets titled in the name of a deceased person, and costly filings must be made with the court in order to allow for the proper oversight of the probate process.   In addition to the time and expenses of a probate, probate is a public record and does not keep family affairs as private as some people would prefer.   A revocable trust created during your life time can help you avoid probate, avoids the public administration of your estate, is usually less expensive in the long-run, and can provide asset protection for the assets that you leave to your beneficiaries.  Though not a one-size-fits-all for every client, a trust provides many benefits that usually can't be obtained through just a will plan.

An estate planning attorney will be able to sort through all of your questions and concerns.  At the Soto Law Firm we offer free consultations to help clients understand more about the differences between wills and trusts, and we focus on education throughout our process so that our clients are well informed about their options and the plan they choose.  Contact us today to get the process started.

Reference: Fox 5 NY (December 12, 2018) “Why estate planning is important regardless of your age or wealth”

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”

 

Talk Early and Often to Family Members About Wealth and Values

The surest way to make sure the wealth you’ve created never makes it past the next generation, is to keep it a secret, or fail to convey values of service and philanthropy to your children and grandchildren.

Creating wealth is one thing. Building a legacy that includes transferring wealth across generations, where each generation understands the privileges that wealth provides, as well as the responsibilities it brings, is a process that takes effort, according to CNN.com’s recent article, “How to plan for wealth that lasts for generations.” Family leaders and their trusted advisors should work together to teach children and grandchildren.

Investments and trusts frequently don’t last to the third generation, and in many instances, the main reason is a breakdown in trust and communication. Sometimes, it's due to a lack of preparedness in the younger generation, and the rest of the time is because the family's values and mission are unclear.

Discussing wealth with heirs can help mitigate pitfalls and prepare them to preserve and grow their inheritance for future generations. Parents may be worried that wealth will disincentivize adult children from their own pursuits and that siblings will fight over money or start to distrust each other.

A solution is to have family meetings to talk about the structure of the estate with everyone over the age of 16, including spouses. This will avoid misunderstandings or suspicions about expectations. It’s not necessary to set out specific amounts.  It is important, however, to state the overall strategy you want to have implemented.

In addition to getting everyone on the same page, it’s an opportunity to pass on lessons you've learned in developing long-term investment strategies. It's also important to discuss your priorities for the wealth, like paying for education, making investments, or funding family vacations. Don’t leave out philanthropy.

Making certain that heirs are prepared with financial know-how and life savvy skills is crucial to a successful transfer. You should tell them when they are well-established and emotionally ready. However, financial responsibility should be taught when they’re young.

It's critical to be clear about values that form your family legacy.

Have regular family meetings to update changes to the estate, family business and access to assets. Let family members talk about the charities they like and to present business ideas.

When three generations are bound not just by their name or their wealth, but by a shared sense of values and a desire to maintain and build on a family legacy, there is more likelihood of success.

Here at the Soto Law Firm we can help facilitate those discussions around a customized estate plan that can maximize your families capability of protecting wealth from one generation to the next.  Contact us today to get started with a free consultation

Reference: CNN.com (September 10, 2018) “How to plan for wealth that lasts for generations”