Spring 2018 Legacy Newsletter

Estate Planning Newsletter

Download a copy of :The Legacy Advisor Spring 2018

IRAs and other tax-deferred retirement accounts allow your savings to grow tax free until you start withdrawing funds. Any distributions you take from a retirement account (with the exception of Roth accounts) are taxed as ordinary income. Once you attain the age of 70½, you are required by law to take required minimum distributions, the amount of which are determined by a schedule established by the IRS. The funds in the account that are not distributed continue to grow tax free. If you die before all of the funds are withdrawn, the balance of the account will go to a beneficiary you have named.

Naming the appropriate beneficiary of your IRA or other retirement very important. By naming the proper beneficiary, the funds in the retirement account can continue to grow tax free even after your death. A person who inherits an IRA must begin taking distributions the year after the death of the IRA owner. However, distributions after death can be based on the beneficiary’s age and life expectancy, rather than that of the deceased owner. Accordingly, you want to name a younger beneficiary, such as a child or grandchild, who has long life expectancy over which to “stretch out” their required distributions. The smaller the amount of the distribution the beneficiary is required to withdraw each year, that greater the amount of the account balance that can continue to earn interest tax free.

Naming a Beneficiary of Your IRA

Nonetheless, naming an individual as the beneficiary of your IRA can create difficulties.

  • If the beneficiary is a minor, distributions must be paid to a court appointed guardian.
  • An adult beneficiary is not obligated to take only minimum distributions. They can withdraw all the funds at once and lose a substantial portion of the IRA balance to taxes.
  • If the beneficiary’s spouse divorces them, the IRA account will be subject to the divorce settlement.
  • If the beneficiary has debt problems, a creditor will have access to the inherited IRA account.
  • If the beneficiary has special needs and is receiving government benefits, inheriting the IRA may cause them to lose their benefits.

Naming a Trust as the Beneficiary of your Retirement Account

Naming a trust as the beneficiary of your retirement account can provide you with greater control over how the account balance is distributed and provide your beneficiary with greater protection against divorcing spouses and creditors. Your trust agreement can instruct the trustee to take only required minimum distributions over the beneficiary’s lifetime, ensuring that funds are withdrawn on the most tax efficient basis. The trust can be drafted to protect the retirement account balance from your beneficiary’s divorcing spouse or other creditors. You can also safeguard the government benefits of a special needs beneficiary while allowing them to benefit from your retirement account.

In order for a trust to be named as the beneficiary of an IRA or other retirement account it must meet very specific legal requirements. Accordingly, an IRA beneficiary trust should only be prepared by an attorney who is experienced in this area. If you would like to learn more about using a trust as the beneficiary of your retirement account, give us a call at 440-930-2826.

Where There's a Will, There's NOT Always a Way....

Most people believe that estate planning consists of nothing more than preparing a Will to specify how your assets are to be distributed upon your death. Proper estate planning, however deals with protecting your family and assets both during and after your lifetime. A comprehensive estate plan involves: (i) preparing for your disability or incapacity; (ii) planning for your potential long term care needs; and (iii) protecting your children’s inheritance even after your death.

A Will Does Nothing to Manage Assets If You Become Incapacitated

A Will takes effect only upon your death. If you become incapacitated, a Will does nothing to provide for the management of your assets during your lifetime. For example, if you suffer a severe stroke and are unable to handle your own affairs, someone must have legal authority to manage your assets on your behalf. Absent proper legal planning, a person will have to apply to the probate court to be appointed your guardian. Once a guardian is appointed, this person must periodically file accountings with the court to demonstrate how your assets are being managed and is often required to seek the court’s permission to expend assets on your behalf. This is a time consuming and burdensome process that can be avoided by implementing a complete estate plan.

Benefits of Estate Planning

A thorough estate plan will also prepare for the likelihood that you may require long term care later in your life. More than one-half of all those over the age of 65 will require some form of long term care during the remainder of their lives. This may consist of in-home care, residence in an assisted living facility, or nursing home care. All forms of long term care are expensive and can easily dissipate your assets over a relatively short period of time. Without proper planning, most people are forced to rely on Medicaid to pay for long term care costs. Qualifying for Medicaid, however, generally requires you to expend all of your assets and become impoverished.

At your death, a Will specifies the persons who are to receive your property. However, the administration of a Will must be supervised by the probate court. The costs of the probate process may easily consume over five percent of the value of your estate. Moreover, when your assets are distributed under a Will, the property received by your beneficiaries is exposed to significant risk of loss. For example if one of your children gets divorced a few years after receiving his or her inheritance, the divorcing spouse may acquire one-half of the inheritance in a divorce proceeding. If a child is involved in a lawsuit and a judgment is entered against him, all of the inheritance may be used to satisfy the judgment. If a child has creditor problems, assets received under a Will are available to satisfy the claims of those creditors.

All of the problems just described can be avoided by a comprehensive estate planning package. Through the use of carefully drafted trusts, powers of attorney and other documents, it is possible to prepare for problems that may occur during your lifetime, and to provide protection financial protection for your children even after your death. For more information on how proper planning can protect your family please give us a call at 440-930-2826.

Medicare Supplement Basics

(Featured Guest Article)

Most people 65 and over rely on Medicare as their primary health insurance. However, traditional Medicare does not cover all medical expenses. Co-payments and deductibles often leave Medicare beneficiaries with significant out of pocket expenses. Because of this problem, private insurance companies offer policies designed to pay medical costs not covered by Medicare. These policies are known as Medicare Supplement or Medigap policies.

If you are thinking about purchasing a Medicare Supplement policy, there are many factors to consider. Here are a few:

  • You must be enrolled in Medicare Part A and Part B
  • Medicare Supplements sold after January 1, 2016 are not allowed to include prescription drug coverage
  • Policies can differ significantly in coverage
  • Premiums can vary by insurance company

When purchasing a Medicare Supplement policy, you should consult with a licensed, knowledgeable professional who can explain the costs and benefits of the various policies available and help you to select the one that best fits your needs and budget.

If you have any questions about Medicare Supplement policies or Medicare in general, please feel free to give me a call.

Jared Van Dyke
Health Markets