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  • Over five years - there will be no penalty, but you will pay tax each year on the amount withdrawn.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

Wednesday, June 27, 2018

Estate Planning with the Smothers Brothers in Mind


“Whether you go back to Cain and Abel, or only as far back as the Smothers Brothers (‘Mom always liked you best’), sibling rivalry is the chief factor in many disputes arising after a parent dies,” attorney Karen Gerstner writes in Law Trends & News. Many people attribute litigation to greed, but in the case of family situations, Gerstner observes, often much more is involved.  Deep-seated resentments may be based on perceived unfair treatment by a parent or sibling, often going back many years, and the last living parent may have been the only “glue” holding the children in the family together.

Contested matters handled by probate courts include disputes over:
  • validity of a will
  • guardianship contests (should a guardian need to be appointed for an individual who allegedly has lost the mental capacity to make decisions)
  • breach of fiduciary duty against an executor, trustee, or guardian
“When a parent dies, siblings may battle for years over their inheritance,” begins a Wall Street Journal piece, which cites the example of Al Hendrix (father of guitarist Jimi Hendrix), who left Jimi’s inheritance under the sole control of one of his siblings..

At Rebecca W. Geyer & Associates, we know that sibling rivalry does not end when parents die, and when one heir challenges a will or trust, the costs of litigation can be high, not only in legal fees but in damage to family harmony.
In the aftermath of a death, emotions tend to be particularly volatile, so the fewer surprises, the better. If assets – or control over assets – are to be unevenly distributed among children, those intentions are best discussed with the children ahead of time. As estate planning attorneys in Indiana, our goal is to help parents identify possible issues and, to the extent possible, create a plan that will be unlikely to further aggravate a touchy family situation. Sometimes that involves helping parents write personal letters explaining the thinking that went into the estate plan.

“Many things can exacerbate the already trying process of settling a parent’s estate and distributing the inheritance,” observe the authors of the Smart Planner Blog, including:
  • differing perceptions of what each sibling has “earned”, say by taking care of an aging parent
  • economic disparity between siblings
  • how step-siblings and new spouses fit into the picture
  • the perception that one sibling may have exerted undue influence over the parent(s) for personal gain
Good planning, but even more important, good, open family discussions can help avoid having estate settlement become a battleground for the settlement of old resentments.
- by Ronnie of the Rebecca W. Geyer & Associates blog team

Wednesday, June 20, 2018

The Indiana Department of Education Can Help in Charitable Planning


The concept is an interesting one, and very much in keeping with the charitable planning goals of certain of our Geyer law estate planning clients - helping both corporations and the well-to-do help their low-income neighbors.

The Indiana legislature established the School Scholarship Tax Credit Program to incentivize private donations that fund educational choice for low-income families, while the Indiana Department of Revenue and the Indiana Department of Education adopted the rules for implementing the program.

How does the program work?
Private donations fund SGO scholarships. The State of Indiana provides funds for School Choice Scholarships, which are vouchers that enable students from low-to-middle-income families to attend non-public schools in Indiana.
Donors (either individuals or corporations) can take advantage of a 50% state tax credit when they make contributions to a qualifying SGO (scholarship granting organization). Donors’ gifts also qualify as charitable contributions for federal income tax purposes.  Contributions of appreciated stock or mutual fund shares, plus qualified charitable distributions from IRAs can create even greater federal tax savings.

Parents apply for scholarships for their children who want to go to a participating non-public school of their choice. (The student must be member of a household with annual income of no more than 200% of the amount required to qualify for reduced or free federal lunch program.)

Overall cap – There is no limit on how much a donor can contribute to a qualified SGO, but the entire program has a limit of $12,500,000 for the fiscal year beginning July 1, 2017, and ending June 30, 2018 (just over a week from the publishing of this blog post).

As Indiana estate planning attorneys, we offer no tax advice, instead working together with our clients’ tax and financial planning advisors, we find that charitable giving is an important element in many of our clients’ overall estate plans.

It’s good to know: the Indiana Department of Education can be a partner in charitable and estate planning!
- by Ronnie of the Rebecca W. Geyer & Associates blog team

Wednesday, June 13, 2018

Cases in Canada Shed Light on U.S. Estate Planning No-Nos


A court ruling in Canada presents an important reminder for our blog readers. Canada, of course, has a different law system from that of the United States, but the issue itself is one that often comes up in our discussions with Geyer Law estate planning clients, having to do with treatment of property held jointly by parents and children…
In this 2007 ruling (Pecore v. Pecore), the Supreme Court (of Canada) acknowledged that there are legitimate reasons why parents transfer property into joint names with children, including
  • assistance with financial management
  • simplification of estate administration
  • avoidance of probate fees payable on death
But holding property with children can be risky, the Pallettvalo newsletter points out, and “parents should never add a child's name onto bank accounts or other property without proper legal advice, as few other issues cause as much conflict in the administration of estates”.

Why does adding a child’s name often cause conflict? ”Whenever property owned by a parent is transferred into joint names with one of his or her children, it raises questions about whether the parent intended to have the property go to the child/joint owner alone, or intended to have such property distributed according to his or her will.” (What if the will divides the parent's estate among all of his or her children equally, and now the child who is joint owner believes the property was intended to be theirs alone?)
As estate planning attorneys in Indiana, it is very interesting to us that, because of the Pecore case and others like it, it is now the law in Canada that whenever a parent gratuitously transfers property into joint names with an adult child, the court will presume that the property is not intended to pass to such child on the death of the parent, but is intended to form part of the deceased parent's estate to be distributed in accordance with his or her will.

Proper estate planning, we explain to our Geyer Law clients, does more than put you in charge of your finances. It can also spare your survivors misunderstandings and bitter disputes.

- by Ronnie of the Rebecca W. Geyer & Associates blog team

Tuesday, June 12, 2018

Pre-Nups Avoid Messy Issues that Develop on Death

One high-risk factor for probate litigation is the so-called “second marriage” situation, Karen Gertsner writes in the American Bar Association’s Law Trends and News. Many people, including the media, the author points out, mistakenly believe that the sole purpose of a pre-nuptial agreement is to specify how assets will be divided if the couple divorces. But estate planning lawyers, she says, are more concerned with the “messy issues” that develop upon the death of one of the spouses. Not to be too harsh, Gertsner says, but it appears irresponsible for persons who own any significant assets to enter into a second marriage without a pre-nup. A classic “mess” that can result is probate litigation where the children of the first marriage are fighting the spouse of the second marriage for assets.

At Geyer Law, we highly advise people entering into a second marriage to consider using a premarital or prenuptial agreement.  Not only will that enable them to pass assets to children from a prior marriage (or to retain assets should the marriage end), there are many other details that are best handled through a well-thought out and properly drafted agreement that specifies:
  • how debts will be handled (upon separation, divorce, or death)
  • how spousal maintenance (for an ex-spouse or this one) will be handled
  • how medical and long term care costs not covered by insurance will be handled
  • how funeral costs will be handled
The process of developing the prenuptial agreement may inadvertently raise concerns regarding trust in the relationship or comfort with the broader family, acknowledges Abbot Downer in A Thoughtful Approach to Prenuptial Agreements, but good communication is key to a good marriage.

As estate planning attorneys, we strongly agree. The very process of discussing the points to be covered in the prenuptial agreement document forces the couple to get to know each other better and to think about how they plan to handle life together.

Each partner must consider his/her own general attitudes towards money, including spending and savings habits, as well as accepting that the other partner’s goals and attitudes may differ. The goal is not to have the same views, says Abbott Downer, but to come to a place of understanding, empathy, and agreement regarding how differences will be addressed.

Negotiate lovingly is the advice, focusing on “the value of agreeing in advance to financial guidelines that will serve you for many years to come”.

Prenuptial agreements avoid those messy issues that tend to develop upon death!