Tempe Arizona Estate Planning

How Well Does a Revocable Trust Work in Estate Planning?

There are people who still think that trusts and estate planning are only needed by wealthy families to protect their millions and billions. However, that’s not true. Estate planning, wills, and trusts are for every family who wants to protect their assets.

There are as many different types of trusts as there are situations that call for their use. Knowing which trust you need and how it can work to benefit the family, is necessary before any trusts are created.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust where the grantor creates a trust, funds it, manages it by herself and has unrestricted rights to the trust assets. The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and can help you in the process of re-titling property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides control and management of trust assets, if and when it’s needed.

Let’s examine some of the potential lifetime and estate planning benefits achieved through a trust plan:

• Management Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
• Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during the grantor's incapacity without having to declare the grantor incompetent and petitioning for a conservatorship over the grantor.  A conservatorship can be a stressful legal proceeding that declares a person incompetent and appoints another as their conservator, someone who is in-charge of their financial decisions and assets. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids the conservatorship process because a grantor can state the process for how they will be succeeded as trustee and who will be the successor trustee.  After the grantor has recovered, the grantor can resume the duties as trustee.
• Probate. The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress, and time associated with the probate court's supervised process.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Start by talking with an experienced estate planning attorney about what you want to achieve. This includes distribution of assets, minimization of taxes, passing wealth across generations, or protecting heirs from creditors. Your attorney will create a plan that is best suited for your unique situation.  Contact the Soto Law Firm today to discuss your options and how you start the estate plan process.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

Dad Refuses to Create an Estate Plan, Can Kids Do Anything?

There are some people who simply can’t be persuaded that an estate plan could help their family. If the stubborn person is legally competent, there’s not a lot that can be done.

Some parents are just set in their ways, and it often seems like the older they get, the more cantankerous they get. In one family, a father has told his four sons that they are going to receive an inheritance, and even told them exactly how much they can expect—$250,000 each. They know that their father has worked and saved throughout his entire life to amass that money for their benefit, and they are very appreciative. However, he doesn’t want anyone to think he’s rich, so he refuses to have an estate plan created.

With their mom already passed away, how can the four sons protect themselves from unnecessary taxes?

nj.com’s recent article asks simply, “My dad refuses to create an estate plan. Can I save my inheritance from taxes?” The article suggests that maybe the father in this scenario will change his mind, when he understands that estate planning will actually protect his privacy, although he’ll have to share his information with an attorney.

The reason is probate, the court-supervised legal process that gives the personal representative—typically the surviving spouse or another close family member—the authority to collect the deceased person's assets, pay debts, pay taxes and then transfer assets to the people who inherit them.

The process can be more complicated, if the deceased person didn't have a valid will but is otherwise similar. The probate process is part of the public record, and so is the father’s will. However, a person would have to proactively search for the records.

In light of this, the best way to keep financial information private is to make certain that the assets are transferred outside of the probate process. One  way to transfer assets outside of the probate process is by using transfer-on-death accounts. A senior completes forms at his bank or brokerage firm, so that his assets will automatically (and privately) transfer to the children when he passes away. Likewise, life insurance, IRAs, and 401(k)s will also pass outside of probate, provided the beneficiary designations are not payable to his estate or left incomplete. This is not a perfect solution to the problem however.  If the beneficiary named predeceases you, then that assets may still have to be probated.  Thus, transfer-on-death designations are better than doing nothing, but there are potentially problematic situations that can arise.

Joint tenancy with the right of survivorship accounts are also useful to avoid probate. However, they are typically only used between spouses, which means that a probate could still occur at the passing of the surviving spouse. 

As far as estate taxes, any inheritance left to a spouse can qualify as exempt from estate tax if left to the surviving spouse in the right way. However, an inheritance left to a non-spouse could be subject to estate tax, when it exceeds a threshold called the life-time federal estate tax exemption.  The current lifetime federal estate tax exemption amount is now $11.4 million per person.

A living trust is one of the best options to keep assets out of probate, especially if the parent owns any real estate.  Assets owned by or titled in the name of a trust avoid probate proceedings at the death of the individuals who created the trust.  A well drafted trust can also avoid many of the "what if" scenarios that aren't able to be addressed by a will or transfer on death provisions, such as: Who is in charge of my assets if I am alive but incapacitated?  What happens to my assets if my spouse and I pass away at the same time?  How do I protect my beneficiaries from creditors, predators, or divorcing spouses? What is the best way to utilize both spouses lifetime federal estate tax exemption?

The four sons would do well to speak with an estate planning attorney to figure out how to explain to their father how his refusal to have an estate plan might impact them. At the end of the day, that’s all anyone can do.  If you find your loved ones in this situation, contact the Soto Law Firm today to discuss possible solutions that can help your family.

Reference: nj.com (February 28, 2019) “My dad refuses to create an estate plan. Can I save my inheritance from taxes?”

Second Marriages and Money

Getting married for the second, or third, time, is a little more complicated than first-time marriages. There are usually children to consider, and assets, like a home and retirement savings.

By the time you’re ready to walk down the aisle a second time, you know a bit more than you did in the first go-round. You know money matters, children from both spouses will play a role in the success or failure of your marriage and that you have to take some steps to protect yourself, your children, and your money, just in case things don’t end happily ever after.

Barron’s recent article, “How to Manage Your Money When You’re Remarrying,” says the subject of money should be easier this time around. Money talk might have been taboo going into your first marriage, but experience—and the battle wounds of divorce—tend to make this dialog much easier.

The best strategy for navigating the financial side of remarriage is to be direct and give yourself plenty of time before the wedding to work out the details. All good financial plans start with a broader discussion that has more to do with identifying and setting goals, than it does about dollar signs.

Consider what you hope to achieve individually and as a couple over the next year, five years, decade, and so on. Discuss your priorities and intentions, be specific, and write it all down. Your conversation will be the groundwork for the specific financial planning decisions the two of you will need to make, when it’s time to formalize your plans for merging finances or—as the case may be—keeping them separate.

Prenuptial agreements, or “prenups,” are becoming more frequently used by millennials because they are marrying later and bringing more assets and debt to the marriage. In the case of remarriage, a prenup should be strongly considered by most couples. This legally-binding agreement details how assets and liabilities will be divided, in the event of divorce.

Many experts suggest keeping separate checking, savings, and investment accounts—but setting up joint accounts for shared lifestyle expenses. Having a joint account removes the need for constant discussion about how you’ll divide expenses. Create a monthly joint budget and agree on the fairest way to split it. Some couples divide it down the middle, while others base it on a percentage of their respective incomes.

You don’t need to have your entire estate plans settled before the wedding but be certain to update key documents following your wedding—such as your wills, medical advance directives, and the designated beneficiaries for your retirement plans and insurance policies.

How assets will be divided at the death of each spouse, is a hot spot for many couples. An estate plan, in addition to a prenup, can state your wishes clearly. You’ll need a plan to ensure that you don’t disinherit children from a first marriage. As grim as this sounds, one of you will die first, and you may need your estate plan to incorporate trusts so that children from both spouses and the surviving spouse are treated fairly. The last thing you want is for your spouse to lose the blended family you’ve created, because of fights over money.

In a second marriage situation it is easy to make big mistakes that could cause many hardships for your family down the road.  Contact the Soto Law Firm today to speak with an experienced estate planning attorney who can help you avoid potential problems for your family in the future.

Reference: Barron’s (March 2, 2019) “How to Manage Your Money When You’re Remarrying”

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”

Blending Families? Be Mindful of Your Estate Plan

An estate plan is the perfect solution to making sure that your assets are passed on to your children from a prior marriage—if you make sure that is addressed in your estate plan. If you neglect to do this, you could disinherit your own children.

Here are some interesting statistics: the rate of remarriage has decreased over time for all age groups, except those who are 55 and older. In 1960, only 42% of those 55 and older remarried, and in 2013, that number jumped to 57%. About 17% of people who divorce, eventually remarry. If you are among those who take that leap of faith and marry for a second (or third) time, you’ll want to be sure to have an estate plan that protects your children from prior marriages, says CNBC in a recent article, “Remarried after having kids? Here are tips to avoid accidentally disinheriting them.”

Many people don’t have even a basic will. The risk can be higher, if you have no estate planning when you remarry—your children could unintentionally be disinherited.

The older you are when you remarry, the more apt you are to be bringing assets into the marriage, such as retirement savings, life insurance, brokerage accounts, real property and family heirlooms. Estate planning helps to avoid family conflict.

If you die without a will (intestate), Arizona state statutes who the heirs of your estate will be and how much each heir will recieve. Of course, everyone’s situation is different, and some estates can be more complex than others. However, here are some keys to consider, when thinking about how to make sure your heirs end up with the assets you want them to have.

Account beneficiaries. It’s easy to miss this when you remarry. Update the beneficiary designations on retirement accounts, life insurance policies and other accounts. This designation supersedes any intention stated in your will.

Your home. Remarriage frequently involves a jointly-owned home. Depending on state law and how the property is titled, your intention for your children to inherit your share of it could be thwarted.  If the house is deeded as "joint tenancy with right of survivorship" or "tenancy by the entirety," the property typically automatically belongs to the surviving spouse, regardless of what your will says. If you own the house in "tenancy in common," you can leave your share to a person other than your spouse, if you want.

Your personal property. If you want your children to get some particular items when you pass away, be as detailed as possible in your will, so there is no room for confusion.

Power of Attorney. Select someone to handle your finances, if you reach a stage where you can’t. A durable power of attorney for your finances allows your agents to be in charge of paying bills and filing tax returns. A durable power of attorney over health care permits the named person or persons to make important health-care decisions on your behalf, if you are unable to make your own decisions.

Living Will. A living will expresses your wishes if you’re placed on life support or suffer from a terminal condition. It helps guide your proxy's decision-making regarding life support and comfort care at the end of your life.

The process of updating your estate plan starts with a conversation with your spouse and your estate planning attorney. Make sure that your will reflects your wishes. Don’t leave it to chance, or hope that your kids will somehow work it out with your spouse or their step-siblings. Put it in writing, and make it legally enforceable with an estate planning attorney.  Contact the Soto Law Firm today for a free consultation to start the process to protect your family.

Reference: CNBC (January 17, 2019) “Remarried after having kids? Here are tips to avoid accidentally disinheriting them”

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”

Complete Your Estate Plan While the Year is Still New

A new year brings all sorts of new opportunities. Promises that we make to ourselves don’t always get fulfilled, but one that you can do, with the help of an estate planning attorney, is complete or update your estate plan. It’s good for you and your family.

Having an up-to-date estate plan, before filing this year’s tax returns, is still a possibility. Putting an estate plan in place might be a significant factor in your tax planning, as well as protecting your family from future events. A few key tips come from an article in Utah Business, “5 Estate Planning Tips For 2019,”

Your Will. If you have a will, you’re ahead of more than half of the people in the U.S. Remember, however, that estate planning isn’t a one-time thing. It’s an ongoing process that requires making sure your plan reflects your current wishes and financial situation. You should review your will at least every few years. However, there are also some life events that should trigger a review, regardless of when the last review occurred. These include marriage, divorce, the birth or adoption of a child or grandchild, an inheritance, a large financial loss and the loss of a spouse.

A Trust. Anyone can create a trust, and it has real estate planning advantages. You can use a trust to pass assets to heirs and other beneficiaries, just like you could with a will. However, assets passed through a trust don’t need to go through probate. Using a trust to transfer assets provides privacy.

The Current Tax Breaks. The 2017 Tax Cuts and Jobs Act gives us some significant tax cuts in 2019, such as a temporary doubled lifetime exclusion for the gift and estate tax, temporary exemptions from the generation-skipping transfer tax, higher annual gift limits and charitable contribution deductions. To see if you can use of any of these tax benefits, speak to an experienced estate planning attorney.

Talk to an Attorney for a Review of Your Estate Plan. It’s important to remember that estate planning is complicated. You should, therefore, develop a comprehensive estate plan with the help of an experienced attorney. Don’t be tempted to use an online legal do-it-yourself service to save a few dollars, because any mistakes you make could have a big impact on you and your family’s financial future.

Don’t overlook the importance of sitting down with an estate planning attorney. Estate planning law is based on state law, and every state has its own laws and procedures to be followed. If your estate plan is not done correctly, you run the risk of a will that is declared invalid during the probate process. Such a result could mean that your assets will not be distributed, according to the wishes you expressed in your will.  As a result, decisions will be made according to the laws of intestacy.  An estate planning attorney will ensure that your wishes are properly documented.  She or he will also be able to help you work through the details, based on years of experience in helping others through this process.

Contact the Soto Law Firm today for a free estate planning consultation with an experienced attorney.

Reference: Utah Business (February 5, 2019) “5 Estate Planning Tips For 2019”

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”