IRAs and creditors became a hot topic due to a case that went all the way to the Supreme Court recently. The Supreme Court found in favor of the creditors. The inherited IRA owners had filed for bankruptcy, but were attempting to have the IRA declared a retirement fund. This didn’t fly in the courts because while the money could have been used after retirement, there are no penalties for removing money from an inherited IRA before any particular age. Thus, it’s not viewed by the courts as any more of a retirement fund than a checking account or a stash of money in someone’s mattress.
As a result, the $300,000 in the IRA ended up being counted as assets when it came to settling up debts. No one wants their retirement money or an inheritance for their children to end up going to greedy creditors. This makes an IRA Trust a better option.
What Makes an IRA Trust Different?
An IRA Trust is different from an inherited IRA in several significant ways. It protects the asset, so if the beneficiary is being sought after by creditors, the IRA is not affected. Also, there are additional tax benefits. The Trustee is given certain privileges in caring for and preserving the Trust for the future beneficiary. All of these advantages set an IRA Trust apart from an inherited IRA. But how can you know which one is right for you?
For example, what if you already have an existing Trust? It may qualify as an IRA Trust. You can also reconcile your retirement benefits along with the rest of the estate.
Get Some Experience in Your Corner
Our experienced lawyers at the Petrov Law Firm would be happy to help in this regard. Whether you need help with estate planning, IRA Trusts, tax benefits, or retirement, we can help you to be prepared for the future.
A living trust is a legal document in estate planning indicating which assets are to be used for your benefit while you are still living and to whom these benefits would transfer with your passing. Living trusts are used by those desiring to avoid the administrative hassle and possible publicity involved in the probate process.
To take the most advantage of a trust, you should make sure everything you own is held in trust form. It is important to occasionally revisit your trust provisions to ensure all of your assets are included as no assets become a part of the trust without explicit inclusion.
A revocable living trust enables the grantor to later change his mind about the property placed into it or even the existence of the trust itself. Benefits of a revocable living trust include avoidance of probate, resulting in faster distribution of assets to beneficiaries, potential money savings, privacy, and the ability to manage your affairs without court involvement should you become incapacitated.1
An irrevocable living trust is one that cannot be changed once it is signed by the grantor. With certain limited exceptions regarding transfers occurring within three years of death, only property owned at the time of death is subject to estate taxes.2 One big potential benefit of an irrevocable living trust is the avoidance of probate and estate taxes because ownership of property transfers to the trust while the grantor is still alive. Properties that fall under the federal estate tax exemption are not subject to these taxes.
The most important thing to consider when deciding between the two types of living trusts is any potential tax consequences. Talk to an estate planning attorney to obtain further guidance on creating a living trust and ensure your assets are used exactly as you wish during and after your lifetime.Read More
With the price of a private college education continuing to rise, parents and grandparents need to consider those future costs into estate planning. Because tuition assistance is often based on the net worth of an applicant and his or her parents, the way in which you leave money for college is critical in both providing for college while protecting your family assets.
For example, if you want to ensure that you family summer goes to your adult child and young grandchild, you could leave the asset in both names. This ensures that you are avoiding any kind of problems as the home passes from your generation to the next two generations. However, when your grandchild applies to college, that family home is now part of his or her net worth and could easily impact the kind of tuition assistance available to you grandchild.
Fortunately, an estate planner can help you create a system of trusts and college funds to ensure that your grandchildren can easily go from college life to professional life without a mountain of debt. Meanwhile you can still protect your family assets so that you great-grandchildren can enjoy the benefits of your hard work and fruitful efforts.
The price of acquiring an undergraduate and Master’s degree from a private university can cost well over $250,000. And that price doesn’t include living expenses. Without proper planning, a significant percent of your assets could easily disappear before your grandchildren turn 22 year old.Read More
Umbrella policies are an inexpensive way to extend your insurance coverage up to a million dollars or more. Why do that? To protect your current assets and future income. In fact, an umbrella policy is an important part of an overall estate plan. Like life insurance, disability insurance, and asset management, an umbrella policy is a way to secure your future from the pitfalls of unfortunate events.
If you cause a car accident and someone dies, then you will face an extensive lawsuit. If you disable or kill a young professional, you could easily face repaying his or her future lost wages. So if your car accident means that the victim can’t work for the next 20 years, you are liable for the $1 million of future lost wages.
And where does the money come from to cover those losses? Your own wages.
First, your insurance company will pay — but only up to the policy limit. And for many people, that’s as low as $15,000. People with “good” insurance, often have $100,000 of coverage. But even with $100,000 of coverage, you would still be on the hook for $900,000. That $900,000 will come out of your own future earnings at a rate of 25% per year.
A personal injury attorney can advise you on the kind of insurance you need. For most people who are mid-career, then you will need an umbrella policy to protect you (and your family) for the future. You will have to increase your auto insurance rates to the maximum. Then, you will add the umbrella policy and have the coverage you need to protect your home and future income.Read More
If you own a business and employ several family members, then you will need to work with an estate planning attorney to ensure the business survives past your passing. The most important factor, beyond who takes over as the CEO, is that everyone who relies on the business for employment can continue to work without any interruptions.
Start by establishing a financial plan for business continuity. Regardless of whether leave the business for retirement or because of your passing, the business will need a plan to avoid the chaos that accompanies the departure of any CEO. If the majority of the business’s financial accounts are held by the owner personally, and not as part of a business account, the business might have to wait until the completion of escrow before any funds can be released.
Frequently, the passing of a family business from one generation to another can be fraught with emotional problems. Some family members might want to leave, others to change positions, and the rest taking sides. A clear, pre-announce plan can reduce those problems. Even if some family members disagree with the plan, at least it won’t be a surprise when the time come for the transition.
If you aren’t sure how you want the business to move forward, your lawyer can put you in touch with a business consultant with a specialization in family businesses. A review of your current business structure along with a continuation plan will save you, your business, and your family time and money when it comes time to see the business pass to the next generation.Read More
If you have ownership in a successful business, you and your estate planner need to develop a business survival plan. Even if you are gone, your business can survive and continue to generate income for your family. Or your ownership in the businesses can be turned into liquid cash and given as a payout to your family. You business will need, at the least, a person to manage the business until a new leader is selected or the business shuts its doors. Either way, your spouse is probably not the best person to lead your business into its next (or last) phase.
Businesses frequently buy life insurance policies on its key figures. And your estate planner can work with you and a life insurance agent to help you determine which kind of life policy is best for you and your business.
For example, if you have a business partner, you might want a life insurance policy that will allow your partner to buy your half of the business. Without a large cash sum to do so, your business partner will suddenly be in business with one or more of your beneficiaries — like your children or your spouse. In addition to a buyout policy, you might consider having a key person policy. With a key person policy, the business receives a cash sum to pay for the search for a new leader.Read More
Pet care is a critical part of an estate plan for any pet owner. Where will the pet live once I die? Unless the pet owner has a good friend or family member close by, the animal could get placed at a municipal shelter without the promise of survival.
If you have pets, but don’t know where they will live when you die, contact a lawyer to help you craft an estate plan that includes pet care instructions. In most major cities, including San Diego, the estate plan facilitates transferring the animal to an adoption agency designed to protect orphaned animals.
Pets provide significant comfort to the elderly. Knowing that the animal will be treated with respect and love for its entire life is crucial to most animal owners. In fact, the well being of a pet is often the impetus for creating an estate plan; with some adults are entirely focused on ensuring their pets are placed in a safe and loving home.
The Helen Woodward Animal Center is a great resource for anyone who needs help determining where an orphaned animal will go. Thanks to an extensive group of volunteers, the orphaned animals go into foster care until a new, permanent home is found.Read More
In California, if you have an estate worth more than $150,000 and no will, the estate has to pass through probate court and will be subject to fees. And probate fees can by high. For example, an estate worth $250,000 will get charged $8,000 in probate fees. The best way to avoid probate court and probate fees is to have a lawyer create a thorough will. And you need to keep that will up to date.
Even if you have an estate worth less than $150,000, you should have a will. Passing away without a will is a good way to create problems in your family. However, if you want to know how to calculate the value of your estate as seen by the probate court, use the following guide for identifying exclusions:
• California does not include any property you own out of state
• You do not include any property with joint tenancy.
• You do not include any community property with right of survivorship.
• You only include half the value of any other community property.
• Life insurance is not considered part of your estate.
• Cars are not included in the calculation.
• Financial accounts with multiple owners are not included in the calculation.
• Assets held in a trust are usually not included.
If you use the general guidelines above and find that your estate is close to the $150,000 mark, don’t risk probate court fees. Hire a lawyer. The money you invest up front is well worth the savings to your estate.Read More
Once you fill out the standard healthcare directive form, or you have created your healthcare directive with your estate planner, you need a simple, but comprehensive way to ensure that your wishes are known upon your incapacitation. Make several copies of the directive, indicating on each, the location of all the copies.
You need to keep the original for yourself. Don’t store it in an ultra-secure location like a safe hidden under the floor in the basement of your cousin’s house. Your healthcare directive needs to be easy to find on a moment’s notice. Simply place the original in a folder at your desk. Of course, if you have a safe, put a copy in there as well.
Give a copy to your lawyer. If your lawyer helped you create the healthcare directive, then she or he will already have a copy. However, double-check to ensure your lawyer has a copy. If the directive comes under question, you will want your lawyer to have quick access to the most recent copy.
Give a copy to anyone named as a healthcare agent. You should have already gone over your wishes with anyone named as your healthcare agent. However, once you have actually signed the final version, distribute a copy to those named in the document.
Think carefully before you hand out any other copies. Your healthcare directive might have some personal choices that will upset your spouse or children. Keep your instructions as private as possible.Read More
Even when you assets are accounted for in a will, the will has to pass through probate before the beneficiaries take ownership. Generally, anything in the will remains private and any assets not named in the will become part of public record once the probate judge makes a determination of beneficiary.
If you want your beneficiaries to immediately take possession of your assets upon your death, there are five primary ways to avoid probate. However, even if you use one of the main methods of avoiding probate court, you should have an estate attorney review your entire estate. As with any legal process, there are variations by state and caveats that could unhinge your intentions.
Trusts: Trusts are fantastic tools for creating multi-generational asset management. But trusts have to be properly created by a good estate attorney.
Jointly Held Property: There are several ways to name property owners on a deed, and if you do it the right way, the property won’t go through probate when the first owner passes. But your lawyer might encourage you to create a trust and avoid this question altogether.
Insurance Death Benefits: Insurance benefits never really belonged to you anyway. The benefit immediately goes to the beneficiary and is often not taxable.
Pay-On-Death Account: This tool is especially helpful for smaller amounts of money held in a checking account. This money is a great way to continue paying debts and making funeral arrangements.
Retirement Accounts with Beneficiary: There is a generation of people who have always had 401(k) retirement plans. So unlike the older generation that benefited from pension accounts, the younger workers will have more money to pass along to heirs.
And technically, almost anything you give away before you die won’t go through probate. But again, this can be a legal nightmare thanks to limitations on gifts. Consult with your estate planner on how to give away property prior to death.Read More