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Military Families Need Estate Planning

Marine saluting flagMany military families—particularly young families—need financial and estate planning advice. With the risks of going into a wartime situation or the potential for a training accident, service members have a greater than average chance of disability or premature death.
The Wall Street Journal article, "How to Serve Military Families," says that in many instances military spouses are young and financially immature. Military families don't settle in one place for very long, so a nonmilitary spouse may have trouble finding a steady job that would provide a second income and a retirement plan. In that situation, if something happens to the service member, and benefits are paid out, they need to be able to access them immediately. It's more likely that young military families will need help getting these estate documents in order and updating their beneficiary designations.
Financial and estate plans can't be static. They need to reflect a family's current life situation. For example, beneficiary designations on retirement plans need to be reviewed and updated, and many soldiers and sailors name a boot camp buddy as the beneficiary of their Servicemembers Group Life Insurance (SGLI) policy after they enlist. This needs to be changed when they've married and have had children.
Retirement and insurance plans pay named beneficiaries, separate from the will. A service member's will may provide that his or her child can't access the assets left in trust until he or she reaches age 25. However, if the child is a named beneficiary of an SGLI policy, the proceeds will be paid directly to the child if he or she is 18 or has attained the state's age of majority; or they will be paid—regardless of age—to a legal guardian who may not be the person the service member would have chosen to manage these funds for his or her child. Another way to go is to have a trust for the child be the insurance beneficiary.
Real estate is another area of concern for military families who move frequently and may own property in multiple states. If the service member is killed, the property may end up in probate without the proper instructions. One might even think about starting a limited liability company for the property and speaking with an experienced estate planning attorney about setting up a living trust to hold real estate assets during his or her lifetime that also names a beneficiary in the event of his or her death.
Reference: Wall Street Journal (April 19, 2016) "How to Serve Military Families"

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What Do I Do with an Inherited IRA?

Old couple having coffeeFirst determine what type of plan is being inherited and what type of beneficiary you are, and then do your research. For this discussion, let's assume it's a traditional IRA. In "If you inherit an IRA, make a plan before doing a thing," USA Today said that if you're the surviving spouse of an IRA owner, you have four options:
1. Roll the inherited IRA assets into your own IRA. This has several advantages. The beneficiary can postpone required minimum distributions (RMDs) until age 70 ½, and beneficiaries can use their own life expectancy to calculate RMDs. Plus it's pretty easy. You don't have to keep both an inherited IRA and your own IRA, they can be combined, but the disadvantage is that the beneficiary will (with a few exceptions) have to pay a 10% penalty tax on pre-59 ½ distributions, and RMDs could be accelerated if the deceased spouse was younger than the surviving spouse.
2. Transfer assets into a properly-titled inherited IRA. There are a few advantages to this. For starters, the spouse beneficiary won't have to pay the 10% penalty tax when taking withdrawals from an inherited IRA prior to age 59 ½. Also, you may be able to delay RMDs if the deceased spouse was younger. However, this is pretty complex. The beneficiary will have to keep their own retirement accounts separate from their inherited IRA.
3. Convert the decedent's IRA to the survivor's Roth IRA. This can be done, but you'll want to work with an experienced estate planning attorney to avoid expensive surprises in the future. The surviving spouse might choose this option if they expect to be in a higher tax bracket later in life, but they should also consider the tax brackets of those who might inherit their Roth IRA.
4. Disclaim all or part of the assets. Again, this involves a meeting with an experienced estate planning attorney. The advantages are that you might be able to have assets pass to younger beneficiaries, using their own life expectancies for RMDs, and keep assets out of the surviving spouse's estate. You'd likely choose this option if the estate wasn't set up properly, or if the surviving spouse doesn't need the money. One drawback is it's irrevocable, and there's no control over where the money goes.
If you are a non-spouse beneficiary, you can't roll over inherited IRA assets into an IRA in your name, but you can: (i) transfer assets into an inherited IRA—you'll have to take RMDs from the inherited IRA, but they'll be based on your age and life expectancy rather than that of the original account owner; or you can (ii) disclaim all or part of the assets. Remember these points:
· Funds have to be transferred to an inherited IRA by December 31st following the year of death for non-spouse beneficiaries to "stretch" the plan assets over their life expectancies;
· Custodians or plan administrators don't have to offer to calculate RMDs for inherited IRAs—beneficiaries may be on their own; and
· Non-spouse beneficiaries must usually take RMDs from their inherited IRAs yearly starting the year after the death of the owner.
Reference: USA Today (March 15, 2016) "If you inherit an IRA, make a plan before doing a thing"

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Beneficiaries…What Are Those?

Kids in grass"When was the last time you updated, or even thought about, the beneficiary designations listed on your retirement accounts, life insurance, or annuity contracts?"

If you don't remember when you last checked your beneficiaries, it's definitely time to review!

Beneficiary designations allow certain assets owned by an individual to transfer efficiently at her or his passing. These include retirement accounts like IRAs, Roth IRAs, 401(k)s, 403(b)s, 457(b)s, and pensions, as well as life insurance death benefits and the residual value of annuities.

These types of assets with designated beneficiaries will transfer automatically, despite anything written to the contrary in a person's will or trust. These assets with designated beneficiaries are also excluded from the decedent's probate estate unless the "estate" is the designated beneficiary.

Owners can designate both primary and contingent beneficiaries. The primary beneficiary inherits the asset, but if he or she dies before the owner, then the contingent beneficiary will be the new owner. If you don't name a contingent beneficiary, the asset will go into your general estate for distribution, which is what you're trying to avoid in the first place by naming beneficiaries.

There are no restrictions on how many beneficiaries can be designated to inherit an asset. You can split your 401(k) 50-50 if you have two children, or 60-40 or 90-10. You can also name a charity as your beneficiary, which can be a nice way to transfer assets to a special organization at your passing. Charities don't pay income tax, so they would get 100% of the value of the asset. If an individual inherits this asset, he or she will be liable for income tax right away or as funds are distributed.

A trust can also be designated as beneficiary to provide control over the asset to someone other than the inheritors. Many times it's used when minor children or individuals with disabilities are to be the ultimate beneficiaries. You should work with an estate planning attorney if you go this route, as the tax and distribution rules are complex.

Review your current beneficiary designations now to be sure they reflect your desires. You also should look at them whenever life circumstances change, like a marriage, birth, divorce, or death. You can change a beneficiary designation at any time.

Since assets with beneficiary designations transfer automatically, make sure that beneficiary designations complement your estate documents. A qualified estate attorney can assist you with how beneficiary designations should be stated to mesh with your overall estate plan.

Reference: Inside Indiana Business (February 29, 2016) "Who Are Your Beneficiaries?"

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Three Things to Think about before Writing Your Will

3-things-to-consider-when-writing-a-will-6-638It may be an unpleasant task to think about your own mortality, but the fact is, writing a will is one of the smartest financial planning activities you can do. Given this, Fox Business asked some of its contributors to discuss some important things to know before writing a will.

Here's what they had to say in a recent post, “3 Things You Should Know Before Writing Your Will.”

1. A will doesn't actually cover all of your assets. If you own property in accounts that have beneficiary designations (IRAs, 401k’s, and life insurance policies), then the people you choose as beneficiaries will inherit those proceeds, regardless of what your will says. And if you own property in joint tenancy with rights of survivorship, your joint tenant will take full possession automatically at your death. Pay-on-death bank accounts likewise give the surviving account holder the rights to withdraw all of the money when you pass away. Also, property held in trust is handled outside of probate.

Make sure your beneficiary designations are consistent with your will. If you make changes to your will, you should review those beneficiary designations to see if similar changes are needed. If you fail to do this, your effort to update your estate planning could create major gaps that will wreck your plans for the distribution of assets after death.

2. Naming your will's executor takes some thought. The executor is the individual in charge of taking care of your affairs and ensuring that your will is executed as you stipulated. This is a big decision: the executor is responsible for several extremely important tasks. These include:

  • Distributing assets as directed by the will.
  • Paying bills and taxes on behalf of the estate.
  • Appearing at legal proceedings for the estate.
  • Maintaining property until the estate settles.

You need to choose the right person for this important job. Many people select their spouse, an adult child, or a trusted friend. But you can also name an attorney as executor. You also can name joint executors and alternates in case the executor you choose can’t serve or he passes away before you do.

Consider these thoughts when selecting an executor. It should be someone you trust to make the right decisions, and a person who is smart enough to ask for help from a qualified estate planning attorney when they need it. Naming several of your children as co-executors might be hazardous, as this could lead to arguments. Your executor doesn't need to be a financial guru, but should be a person you trust with good business and common sense.

3. Take extra care in writing your will if you have young children. In many instances, children can’t deal with the responsibility of inheriting property. Also, if your son or daughter inherits property outright when they're still a minor, the probate court will appoint an individual to be a property guardian if you don't. So it makes total sense to carefully consider whom you want managing your assets for your child after you pass. This is especially vital because a court-appointed guardian will hand over all the inherited property to your child on the day he or she turns 18.

Take some time and think about how you want to address these issues. Your estate planning attorney can help with planning.

For more information about estate planning, please visit my estate planning website.

Reference: Fox Business (August 9, 2015) “3 Things You Should Know Before Writing Your Will”

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Baby Boomers Need to Remember Estate Planning with Their Retirement Planning

EstatePlanningMany Baby Boomers are neglecting a key part of their retirement plans — creating an estate plan. And while death is not a pleasant thing to think about, death without an estate plan can create havoc for your surviving family members, financial planners warn.

USA Today recently published an article, titled “Big retirement mistake: Boomers with no estate plan,”that offers several tips for people who might be lagging behind in their retirement savings.

Failure to consider wills and estate planning is a frequent issue, and not just for Baby Boomers. People usually think that it’s something they can put off and deal with later. The article emphasizes that there are three very important things to think about when you start your estate planning (this week!):

  1. Your property and financial assets;
  2. Your children (if they are not adults); and
  3. Medical decisions.

“Just because you are doing good retirement planning doesn't mean you are doing good estate planning, unless you address all three areas,” the article cautions, and sets out some important things to remember when you create your estate plan:

  • Work with an established estate planning attorney to help you protect the safety of your financial plan.
  • Get comfortable with the laws in your state, as each state has its own probate laws. Again an estate planning attorney is your best bet here.
  • Update all of your beneficiaries. Retirement plan and life insurance beneficiaries don’t pass through your will.  These are totally separate and will pass based on your beneficiary designation.

Talk with an experienced estate planning attorney to review these points and others as you create your strategy for the future.

For more information about estate planning, please visit my estate planning website.

Reference: USA Today (April 8, 2015) “Big retirement mistake: Boomers with no estate plan”

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