IRAs

Are IRA's taxable at your death for PA Inheritance Tax purposes?

Top 5 Reasons To Consider a Trust For Your IRA

Why worry about putting your IRA into a trust? More and more families are putting in place a Retirement Asset Protection Trust today, and we give you a few reasons why here.

5 – IRA’s are Valuable: Your IRA’s may be a significant portion of your estate. If you protect other portions of your estate, why would not consider protecting your IRA?

4 – IRA’s are Tricky: You can’t put an IRA into an ordinary living trust. IRA’s work differently, and for your heirs to take advantage of the special tax benefits, you must use a special trust, the Retirement Asset Protection Trust.

3 – Stretch-Out: IRA’s can grow tax-deferred or tax-free. That means you get more compounding and less principal withdrawal. This works the same when your heirs inherit the IRA. The younger the beneficiary, the less required minimum distribution they have to withdraw annually. The benefits of stretch-out over many years is astounding and can provide a pension for life for your beneficiaries.

2 – Control From The Grave: You can ensure that the IRA is spent the way you want it to be spent, and given to whom you want it to be given to. For instance, if you pass your IRA down to your children, and they eventually pass, would you rather the IRA go to your favorite son-in-law or daughter-in-law, or directly to your grandchildren? Without a trust, you have no say in what happens to the IRA.

1 – Asset Protection: Without a trust, your beneficiary and his or her inherited IRA is not protected from divorce proceedings, creditor problems, lawsuits, bankruptcy and a beneficiary’s own spendthrift habits. A trust can provide a shield of asset protection to such an important asset.

The top five reasons to use a trust for your IRA is just scratching the surface. If you’d like our special report on the Retirement Asset Protection Trust, email us at info@jawatlaw.com today.

Looking for a great resource on estate and retirement planning? Jeremy Wechsler, your Estate & Elder Law Attorney, recently co-authored a new book with Peter R. Wechsler, his father and Your Retirement Quarterback. The book is an easy read but full of valuable information on estate and retirement planning.

Learn more about the book here: https://solvingtheretirementpuzzle.com

IRA’s are increasingly becoming an important part of estate planning for middle class families, particularly those who have worked and saved their whole lives. Sometimes, you will need to live off of the income of your IRA in retirement, but sometimes you will have other sources of income that cover your life expenses.

When your IRA isn’t needed to live on during retirement, it can present great estate planning opportunities for you and your family. You can structure your IRA to leave a pension for life for your kids or grandkids, while allowing the IRA to grow tax-deferred, or if it’s a Roth IRA, tax-free.

To make sure the IRA stays safe and allows for maximum growth, an IRA Inheritance Trust is necessary to accomplish this goal.

How do you know if you need this kind of trust? Here are a few factors to consider when thinking about whether you might need an IRA Inheritance Trust:

• Size of IRA: Is your IRA worth at least over $500,000? If so, it may be a sign you should consider a trust.
   
• How many beneficiaries? If each beneficiary (a kid, grandkid, etc) may get $500,000 or more each out of your IRA, then you should consider a trust.
   
• Ages of beneficiaries: If you are leaving the IRA to several people, some older and some younger, it’s important to establish the IRA trust so that each share can be measured on his or her own life expectancy. The younger the beneficiary, the higher the life expectancy and the lower the RMD. The lower the RMD, the more ability the IRA has to grow and "stretch" out over time.
   
• Issues and challenges for beneficiaries: Are your beneficiaries spendthrifts? Are they too young for you to know if they might turn out to be? What about creditor problems, bankruptcy issues, special needs, divorces and more… These are all reasons that you want to protect and shelter the IRA in a trust for beneficiaries.
   
• Your goals: Depending on your estate planning goals and the factors above, an IRA Inheritance Trust may or may not make sense for you. It’s best to consider whether you need this type of trust with a qualified attorney who is analyzing your entire estate plan. This is simply one tool in the toolbox that can be used to effectively plan with certain cases.

Without an estate plan, many things could go wrong. As always, what could go wrong depends on your situation. Here are ten quick issues that could arise if you do not have an estate plan:

1. If you have kids but have not appointed a guardian, and something happens to you (and your spouse), someone will have to petition a court for guardianship, a burdensome process.
    
2. You have no control over how your assets are divided if you don't have a will.
    
3. If you become sick/incompetent, and an end-of-life health care decision needs to be made for you, your family may end up in court if there is disagreement and discord.
    
4. The state will determine who your Executor will be. What if more than one person wants the role? What if no one wants the role? Either way, this could lead to major conflicts in the family.
    
5. Particularly for a second marriage, if you don't have an updated and carefully drafted durable financial power of attorney, your spouse could cut out your children from the first marriage, particularly when it comes to retirement accounts.
    
6. Your family could inadvertently pay more inheritance taxes.
    
7. For those that are not married, but are either engaged or in a long term relationship and want that significant other to be in control of any decisions for incapacity, etc., you MUST have an estate plan with powers of attorney and wills.
    
8. For any family, there is the possibility of a family conflict over your personal belongings if they aren't assigned to someone in your plan, or while you're still living.
    
9. Without a plan, a trust is not established for minors, dependents, and special needs beneficiaries. Only a custodial account can be created under the UTMA, and the functionality and use of this account is severely limited.
    
10. Lastly, a plan that is not updated might be just as bad, if not worse, if a lot has changed between now and the time you put the plan together.

If you need assistance with your estate plan, please contact our office today at (215) 706-0200.

The most substantial asset in someone’s portfolio is often their IRA. An IRA (Individual Retirement Account) is a tax-deferment or savings device. Whatever is left over is then passed on to the beneficiaries you designated on a form attached to the IRA.

Here’s a typical scenario… Mom wants to leave her $300,000 IRA to her child, who is 25 years old. Mom dies and child receives the IRA, since the child is the designated beneficiary. In this scenario, the child now has the option to let the IRA continue to grow tax-deferred (or tax-free if it’s a Roth IRA). By doing this, the child allows the account to grow substantially, because the younger you are, the smaller the required distributions. However, the child could cash the IRA out at this point, and spend all of the funds on foolish things.

Establishing an IRA trust is the best way to allow the IRA investments to grow substantially, control the distribution of your beneficiary so he or she can’t withdraw all of it at once, and also protect the asset from the beneficiary’s creditors, predators, divorcing spouses, etc. Also, if two or more beneficiaries are dividing the one IRA, an IRA trust can be set up so that each beneficiary uses his or her own life expectancy. A 3 year old grand-child will have to withdraw a lot less on an annual basis than a 25 year old child.

A will or even a standard living trust does not protect one’s IRA from any of the above. A stand-alone retirement trust, or IRA Inheritance Trust, is necessary. It must be designed carefully to comply with the IRS rules.

If you are interested in learning more about the IRA Inheritance Trust, please contact my office today at (215) 706-0200.

When is the right time to start planning your estate? It really depends on your concern, but we help a range of people plan, from those in their 20's through the 90's.

It is especially important to plan if you have young children, or are newly married. You need to ensure a guardian is appointed for your children in case something happens to you and/or your spouse. Also, you want to ensure you have adequate life insurance for your children, and a trust set up in case something happens to you while they are still underage.

If you have grandchildren, you should encourage your children to engage in estate planning if they haven’t already.

Everyone, whether you’re 20 years old or 90 years old, needs a basic estate plan, which includes a will, financial power of attorney, and health care power of attorney (with a living will).

As you build up your 401(k) or IRA, you should see an estate planning attorney to ensure that your beneficiary designation forms are properly completed, and that these accounts are coordinated with your overall estate plan.

When you get into your 60’s, you should consider seeking the advice of an elder law attorney. Medicaid laws make it very difficult to shelter assets in case a spouse goes into a nursing home today. The earlier you plan, the better.

Everyone should update their estate plan every few years, to ensure the documents are still an accurate reflection of your wishes.

As you grow older, your needs will change. You may need more advanced estate planning. Some reasons for needing more advanced planning include:

• Family member with special needs
• Family member with health issues
• Estate value grows
• Property in multiple states
• Family conflicts
• New family members
• Charitable intentions
• Asset protection issues

If we can assist you with any estate planning matters, please do not hesitate to reach out to our office for a complementary consultation by calling (215) 706-0200.

You cannot engage in estate planning today without considering your Individual Retirement Account(s) (your IRA's) and other retirement accounts. Ironically, we often find that these are the most significant assets in a person's estate, and yet these assets are given the least attention. 

Even worse, most estate planning attorneys don't help you plan in conjunction with your IRA's. Why? Because they haven't been trained how to help you in this area. Instead, most attorneys will tell you that your IRA passes outside of your will or living trust, and that the IRA asset will go directly to the beneficiary or beneficiaries you've chosen... case closed.

Most estate planning attorneys do not understand that it doesn't have to be that way! Without better planning, your heirs can withdraw the entire IRA principal, which doesn't allow for growth of the funds. Further, if the IRA is significant in value and you distribute it outright, it is exposed to your heirs creditors, spouses, and themselves (think: are your children spendthrifts?).

By having your IRA distributed to a trust, you are ensuring much greater creditor protection, protection from divorce, spendthrift children, etc. You're telling your heirs that you love them and want the best for them. 

Furthermore, a trust encourages (if not mandates) that heirs only take the required minimum distributions of the IRA. If set up correctly, these required distributions are measuring on the life of your heir. For example, want to leave your IRA to a 4 year old grandchild? That grandchild's required distributions will be a lot less than a 40 year old, allowing great "stretch" opportunities.

Few attorneys understand the complex rules and requirements to ensure this is all done correctly. Many will say you can't put the IRA into a trust. That is incorrect. We've been trained by nationally recognized experts on this subject, and we can assist you in making sure all of the pieces of your plan fit together. 

One more thing… why is this area complex? Mostly because the IRS wants to encourage people to spend down their IRA's. Therefore, the tax laws discourage people from passing on an IRA in such a way that allows for the asset to be a wealth transfer tool. It's not that you can't do it. It's just that the IRS makes it tricky for attorneys to do. Proper language must be used on the beneficiary designation form and in the trust.

Need a review of your IRA and your estate plan? Let us assist you.

Let our firm assist you: Our firm offers a complementary estate plan review and consultation. Please call us today at (215) 706-0200 or email us.

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An estate plan completed by a law firm, by itself, is simply the legal documents that are drawn up to make sure your wishes are valid when you become incapacitated and when you die. 

However, an effective estate plan should be part of your overall retirement plan and wealth management plan. 

When our clients want to make sure their estate plan is seamless with their retirement plan, income plan and tax plan, we work with Franklin Retirement Solutions, a firm that specializes in retirement planning. Together, we can make sure all of the pieces of your plan fit together.

Here's just one of many examples of how a "piece meal" plan can go wrong: Client X has a financial advisor, who doesn't know the estate planning attorney. Client X has a special needs child. Client X asks attorney to protect assets for the special needs child, and attorney drafts both a will and sets up a special needs trust. Client X dies, and estate realizes that assets were not allocated properly (as a special needs child, putting assets directly into this child's name is a really bad idea). Client X's financial advisor was not aware of rules for special needs persons that are on public benefits. As a result, Client X's son almost lost his public benefits. 

By combining your financial planning and estate planning, your plan becomes a lot more effective. Most of our clients love having access to a financial planner, tax planner, Medicare supplement/Long-term care insurance specialist, and more.

To summarize, here are a few advantages of planning with this approach:

• All parts of your plan work together
• Ensures your plan will be reviewed and, if needed, updated more often
• Provides a more seamless transition to your heirs, since your affairs are in order.

We find that this type of planning is extremely beneficial to middle class clients. To learn more about our comprehensive approach to estate and retirement planning, please give our office a call today at (215) 706-0200.

Your will does many things, but any asset that has a beneficiary designation form, such as a life insurance policy, annuity, IRA, etc., does not pass through your will.

Instead, those assets with a beneficiary form pass directly to the specified benefiary, and the will does not control in those situations.

What are the implications of this for your estate plan? All too often, families have not given serious thought to fairness and equality in distributing assets and personal property. For example, in your will, you leave 50% to Child A and 50% to Child B. But you have a large life insurance policy that you purchased before Child B was born, and Child A is the sole beneficiary. As a result, the distribution of your estate is unequal.

The example above is a simple one, but many plans have more assets, family members and gray areas. You should speak with a qualified estate planning attorney who can analyze your entire estate, including the assets that pass outside of your will, and implement a superior solution that will benefit your family.

As always, we recommend that you review and possibly update your estate plan in Pennsylvania no less than every five years. Your will, trust, powers of attorney and beneficiary forms may need changes, and it's a good idea to meet with your attorney to review your documents. If you have not reviewed your estate plan for over five years, please call our office at 215-706-0200 to schedule a complementary consultation.

A great resource to learn more about IRA's, Roth conversions and more is Natalie Choate's podcast page. Natalie is one of the foremost expert on IRA's.

Should you convert your IRA to a Roth IRA? What effect does remarriage have on your retirement? What things should you avoid with your inherited IRA? Natalie's podcast page is chock full of resources. Check them out today:

https://advisor.morningstar.com/products/podcasts/choate.xml