Wednesday, August 15, 2018

Beginning Next Year, Roth Conversions Can't Be Undone

With the halfway mark of 2018 behind us, it might be appropriate to direct some thought towards calendar-sensitive estate planning and tax planning topics. (Last week in our blog we covered donating Required Minimum Distributions from IRA accounts to charity, noting that the law has allowed more flexibility in the timing of Qualified Charitable Distributions.

Unfortunately, when it comes to Roth IRA conversions, flexibility appears to be going away. As Bill Bischoff puts it in marketwatch.com, the new tax law “creates a perfect storm for Roth IRA conversions.”

By way of quick review, Roth IRAs have two big tax advantages as compared with “traditional IRAs:
  1. Withdrawals are federal income tax-free (assuming you’ve kept a Roth account open for at least five years, and you’ve reached age 59 ½ - or have become disabled).
  2. There are no annual required minimum distributions, even after age 70 ½.
Because of these two advantages, many individuals moved significant sums of money into Roth IRAs by “converting” their traditional IRA accounts to Roth status.  Yes, the conversion is treated as a taxable withdrawal, usually triggering a big federal and state tax bill, but…many believe today’s tax rates are the lowest we might see for the rest of our lives.

Since withdrawals from a Roth will be federal-income-tax free (so long as at least one Roth account has been open five years or longer), the motivation for doing the conversion now is to pay tax at today’s low rates (and enjoy spending it tax-free later – or leaving it as a legacy with less tax liability for the heirs).

Up until this year, a Roth conversion represented a reversible decision. Under prior law, if it turned out that the decision to convert traditional IRA monies into a Roth had a greater than anticipated negative tax impact, you could undo the deal up until October 15th of the following year. In fact, if you converted a traditional IRA into a Roth in 2017, you have the chance to reverse that conversion between now and October 15, 2018.

However, for 2018 and beyond, no longer will reversals of Roth conversions be allowed.

Handling IRA planning is yet another example of the way tax planning and estate planning tend to overlap. While Rebecca W. Geyer & Associates does not offer direct tax advice, we do coordinate efforts with other advisors to address the tax aspects of the planning process. This is an important change, and we want to be sure to keep our clients and blog readers apprised of all the latest updates in tax law.


 - by Rebecca W. Geyer

Thursday, August 9, 2018

Any Time is Now the Right Time for Donating IRA $ to Charity

After you attain the age of 70 1/2, you're required to take a minimum distribution from your retirement plans on an annual basis, regardless of whether or not you need the money. If you don't need your required minimum distribution (RMD) and have a charitable intent, it is possible to donate the RMD directly to charity and avoid paying income tax.

Details to note:
  1. Does the law include transfers from 401K’s or other pension accounts besides IRAs? The answer is no. A Qualified Charitable Distribution must come – and must come directly - from an IRA account.
  2. Is there a limit on the contribution? If you’re 70 ½ or older, you are allowed to transfer up to $100,000 to charity tax-free each year, even if that is much more than your RMD.  Your RMD for the year will have been satisfied, and the rest will not be included in your adjusted gross income.
Cautions: 
  1. You cannot “double dip” by also deducting the money you’ve transferred to the charity as a charitable deduction.
  2. You cannot withdraw the money from the IRA and then write a check to the charity; the money needs to be transferred directly from the IRA to the charity.
Bonus benefits:
  1. Because making a tax-free transfer (rather than taking your RMD) keeps the money out of your adjusted gross income, you help avoid the Medicare high-income surcharge.
  2. Keeping money out of adjusted gross income can mean less of your Social Security benefits might be taxable.
The Qualified Charitable Distribution is just one example of the overlap between tax and estate planning.  And while the attorneys at Rebecca W. Geyer & Associates do not offer tax advice, we do coordinate efforts with other advisors to address the tax aspects of the planning process, and we make sure we keep our clients apprised of all the latest updates in tax law.

When it comes to IRAs, we don’t want you to miss out on any of the details, cautions, or benefits!

 - by Rebecca W. Geyer

Wednesday, August 1, 2018

Does an Indiana Estate Plan Survive a Suicide?

Suicide is a disturbing topic, New York attorney Mark Michael Campanella admits, yet suicide is a reality that many families unfortunately face. While there’s no question suicide can devastate a family, Campanella assures clients and their heirs that if a person’s wishes have been outlined in a properly executed and valid estate plan, those wishes will still be followed regardless of the manner of death. The one caveat, Campanella adds, has to do with life insurance contracts, which are often issued with suicide exclusion clauses.

It’s actually not true that,if you commit suicide, your life insurance will always refuse to pay out, insurancequotes.org explains. Some insurance policies will pay benefits even if the policyholder committed suicide so long as the policy has been held for a certain minimum period (usually two to three years, depending on the carrier).

Here at Geyer Law, we could not help noticing that just within the past few weeks, headlines announced the suicides of two celebrities - designer Kate Spade and TV personality Anthony Bourdain. “The reality is that suicide does not discriminate based on age, sex, status or financial well-being,” east coast attorney Gary Altman writes, pointing to the following frightening statistic: Suicide is the tenth leading cause of death in the United States. 

If suicide does affect your family, the attorneys at Rebecca Geyer & Associates can help you navigate the difficult issues which arise when someone dies.

A properly executed estate plan describes in detail what happens to a person’s assets at death. The plan goes into effect as soon as a person dies, and will be followed so long as it is valid. The manner of a person’s death is ultimately irrelevant so long as the plan was executed properly, and we can ensure that the individual’s assets properly pass to his or her intended recipients.

- by Ronnie of the Rebecca W. Geyer blog team


Wednesday, July 25, 2018

Estate Planning with Both Income and a Charity in Mind

“They aren’t for everyone, but this sort of donation could generate income, Eileen Ambrose writes in Kiplinger’s Personal Finance, referring to charitable gift annuities.  Typically a contract between you and your alma mater (or other institution), the charitable gift annuity is a special arrangement whereby you make a donation of cash, securities, or other assets to the organization. The institution invests the money and gives you fixed payments for the rest of your life.

“Consider yourself a prime candidate for investing with your college,” William Baldwin explains in Forbes, if:
  • you’re in a high tax bracket
  • you’d like to consume a certain chunk of your own principal (rather than leaving those assets to heirs)
  • your health is good
  • you own appreciated assets in a taxable account and you’d like to sell (but the capital gains tax would be burdensome)
  • you really like the institution’s mission and want to support it
Particular advantages of charitable gift annuities:
  1. You can diversify without paying an immediate capital gain (in fact, you can claim a tax deduction all in the first year, “skipping over” the tax that would be due on the appreciation in the assets).
  2. The annuity payments are highly secure, backed by an endowment many times larger than its liabilities.
  3. You get a tax deduction upfront.
  4. You receive a fixed, reliable amount of income for life (regardless of the rate of return the charity actually earns on the money).
  5. The income can begin immediately or be deferred until a later time (the older you are, the higher the payout rate.
“And, if you die young after buying a collegiate annuity, it’s not an insurance company that gets a windfall.  It’s an institution you admire,” Baldwin observes.At Geyer Law, we’ve found the charitable aspect of gift annuities is an attribute our estate planning clients find reassuring.

While the attorneys at Rebecca W. Geyer & Associates do not offer tax advice, we do coordinate efforts with other advisors to address the areas of tax and estate planning that overlap.  For estate planning that keeps both income and charitable wishes in mind, a gift annuity might be just the thing.


- by Rebecca W. Geyer

Wednesday, July 18, 2018

Inherited an IRA - What Are Your Options?

If you inherit an IRA from a parent or sibling, writes Eric Vogt in Forbes, you probably have many questions:
  • What options do I have for taking distributions?
  • What are the tax implications?
  • How do I incorporate this inheritance into my existing financial plan?
Two things you can't do:
  1. roll the inherited IRA into your own existing IRA
  2. continue to defer tax until your own age 59 1/2
Things you can - or must do:
  • Roll over the inherited assets into an inherited IRA in your name.  The account would be titled as follows: "Your Parent's Name, Deceased for the benefit of Your Name, Beneficiary".
  • Begin taking required minimum distributions by Dec. 31 of the year following the original owner's death (however, if the person who died was 70 1/2 or older, any Required Minimum Distributions due prior to or during the year of the rollover must be taken out right away).  If you leave the money in the account, but fail to take the necessary distributions, there is a 50% tax penalty.
  • Distributions in excess of your share of your Required Minimum Distributions must first go into an inherited IRA.  All distributions you take will be included in your gross income for tax purposes.
There are three ways to take cash distributions:
  • All at once (lump sum) - you will pay income tax on the entire amount.
  • Over five years - there will be no penalty, but you will pay tax each year on the amount withdrawn.
  • Over the course of your own life expectancy (using the Required Minimum Distribution table based on your age and on a percentage set each year by the IRS. 
"An IRA's greatest gift is long-term tax shelter," writes Jane Bryant Quinn in AARP. "The tax-sheltered growth of these investments could continue for years, even for decades," she explains, coming down on the side of heirs deferring tax on inherited IRAs as long as possible.

Correct titling of the account is critical. At Geyer Law, we often meet with the beneficiaries of our estate planning clients, helping each beneficiary select the best course of action given his or her own financial situation.

If you inherit an IRA from a parent or sibling, it's important to know the things you can't do, the things you can do, and the things you must do to make the most out of your legacy.

 - by Rebecca W. Geyer

Wednesday, July 11, 2018

Estate Planning Around Social Security


“Social Security is known as the ‘third rail’ of politics: American voters are so protective of the federal retirement program that they’ll electrocute any politician who messes with it,” quips Richard Stolz in Employee Benefit Advisor.  The problem for advisors, Stolz emphasizes, is the “yawning gap” between clients’ expectations of the benefits they will receive when they retire and the benefits they actually will receive. “We’re usually saying that, if you’re 50 or older, you’re probably going to get what you think you’re going to get,” a CFS Investment Advisory Services partner says. If you’re younger, you’ve got to monitor it, he adds. Some advisors are running retirement scenarios for their clients with and without Social Security.

“Isn’t this a great system we have? In order to get your fair share of Social Security, you have to bring in a Ph.D. and a programmer,” William Baldwin remarks sarcastically in Forbes, referring to the many considerations - and configurations – through which couples can plan the claiming, and the suspension – of benefits.

In our Indiana estate planning law offices, discussions about our clients’ social security benefits are part and parcel of their estate planning.  Why so? Here's a typical scenario: With social security benefits providing an important – even if hardly primary - source of her own regular income, June Brown feels more comfortable making substantial current gifts of cash and assets to her three children (as opposed to waiting and leaving those assets as an inheritance).

Most people can give away property without needing to pay federal gift taxes, Kiplinger.com points out, since most states do not have gift taxes and the federal gift tax limit is $11.18 million. And, as Maryalene LaPonsie adds in U.S. News, one of the best ways to ensure your money stays in the family is to simply give it to your heirs while you’re alive.”  One factor to take into consideration, of course, is one’s own income needs. Social Security benefits already being collected make up an important component of that income flow.

While the attorneys at Rebecca W. Geyer & Associates do not offer tax or retirement planning advice, estate planning overlaps both these areas. Our goal is to coordinate our efforts with those of other advisors in order to address all aspects of a clients’ financial plan. Meanwhile, we can assist you in maximizing your Social Security benefits, with the reassurance of regular income allowing for flexibility in designing a gifting plan.

- by Rebecca W. Geyer


Thursday, July 5, 2018

Equine Trust - a Pet Trust Using Horse Sense


Estate planning for horses?  Certainly.  In fact, as Jenny Montgomery discusses in the Indiana Lawyer, since 2005, Indiana residents have had the option of creating a trust for the benefit of pets. The pet trust bill was originally introduced by an attorney specifically for the benefit of several clients who wanted to provide for their horses. The concept of an equine trust? Making sure a horse continues to enjoy, after the owner’s death, the quality of care to which it is accustomed.

How does a pet trust work?
  • Each trust is created to provide for the care of one animal.  It must be an animal alive during the settlor‘s (person who establishes the trust’s) lifetime.
  • The trust automatically ends when the animal dies.
  • Either a person is named to carry out the terms of the trust, or one may be appointed by the court.
  • The pet owner sets aside funds in the trust, to be used for the care of the animal.
“Horses are not ‘pets’ in the classical sense,” observes Washington State attorney Rial Moulton, “as their needs are far greater than those of the family dog or cat.” Horses enjoy longer life spans than many other pets, he points out, and the upkeep of a hose can be expensive. One of the biggest challenges, Moulton says, is selecting the proper caretaker for the horse.  He cautions horse owners not to assume that rescue organizations or shelters would step in to care for the horse. 

Adding your wishes for taking care of your horse to your will may not be sufficient, thehorse.com explains. It will take some time for your will to be probated. And, will your wishes be enforceable and honored by the probate court? Thehorse.com. recommends preparing a letter of last instructions, giving someone permission to come onto your property and take care of your horse from the date of death until the will is probated, and explaining if there is an equine trust set up.

“If you have a client or know someone that rides a horse, owns a horse, or has a business that involves horses in any way at all, you may be surprised at just how many legal facets are involved,” read the preview of a special session at a recent legal education conference.

Our work at Geyer Law is dedicated to helping clients provide for those they want to comfort after they die, including the equine pets who have comforted them!

- by Rebecca W. Geyer