OCElderLaw

Remember to Take RMD from Inherited IRA in Fullerton, CA

Not all assets are inherited in the same way. Take IRAs, for example. When does the IRA of your deceased spouse become “yours,” what should you do with it, and what do you need to know to stay out of tax trouble?

The Slott Report recently addressed the consequences of when a surviving spouse inherits the IRA of their deceased spouse and both have reached age 70 ½, the age for Required Minimum Distributions (RMDs). The article titled “Inherited IRA: When do You Own It?” noted that one must be very careful.

For starters, the inheriting spouse must be the “designated” beneficiary. Assuming that is the case, what happens when your spouse dies in December and has not withdrawn the required RMD? Must you as the surviving spouse calculate your RMD on both account balances, your spouse’s and your own?

RMDs are always tricky because the penalties are steep, with a 50% penalty tax on the amount required but not taken.

Bottom line: be sure to get competent legal and tax advice before proceeding if you are the designated beneficiary of an inherited IRA.

Reference: The Slott Report (May 6, 2013) “Inherited IRA: When do You Own It?”

For more information on IRA inheritance please visit ocelderlaw.com.

Just Passing Through – IRS Scrutinizing Pass-Through Entities. Changing the rules in Fullerton.

Trusts can be incredibly powerful tools. They can accomplish many goals and, depending on the type of trust, can secure some legitimate tax advantages. Little wonder ObamaCare may be changing all of that in the hunt for revenue to pay for the program.

It may not be a game changer, but it may be worth noting that some trusts might get a bit more dinged up this year with the new 3.8% surtax on investments created by ObamaCare.

Indeed, the accountants are just starting to do the math after the IRS staked out its position in a new “technical advice memorandum” (see TAM 201317010). Forbes has weighed in on the consequences of this new TAM in an article titled “Tough IRS Position Means More Trusts Will Get Hit With New ObamaCare 3.8% Tax.”

Cutting to the chase, the new 3.8% ObamaCare surtax hits investment income, and trusts that own interests in pass-through entities are construed as ‘passively active’ (a bitter oxymoron in accounting-speak) and thereby produce investment income to tax.

To make matters worse, such trusts see the tax kick in at a much lower income rate than for an individual. And, to further complicate things, such trusts are not often designed to be “active” entities. A complex plan might involve various trusts with various holding interests in companies, and might be targeted at various levels. As you can see, things can get complicated fast.

Like most matters on the tax (and political) front, it remains to be seen how the year and the tax battle will be played out. Nevertheless, you should keep an eye on Washington, D.C., and a hand on your wallet.

Reference: Forbes (April 29, 2013) “Tough IRS Position Means More Trusts Will Get Hit With New ObamaCare 3.8% Tax” 

 

Learn more at www.ocelderlaw.com

 

Daughter Experiences Estate Plan Nightmare as Executor: Don't let it happen to your Fullerton Family

In many respects, understanding “personal finance” is easy when it is about annual year-ends and accounts balances. On the other hand, it is quite another matter when you look at personal finance over the life of an individual, and yet another still when you become the executor to that individual’s estate.

Since we will not live long enough to make all of life’s mistakes, it is prudent to learn from the mistakes of others. In this spirit, there is much wisdom to be gleaned from a recent autobiographical article in Forbes titled “What My Dad's Death Taught Me About Money.”

As you read this article, there are many lessons the daughter and only child of the decedent learns in her role as executor. The unfortunate fact is that these lessons were learned the hard way and unnecessarily. I highly recommend reading the full article, but her are the essential takeaways:

Lesson #1: Everyone Should Have an Estate Plan … or at Least a Will

Lesson #2: Adequate Medical Insurance is a Must

Lesson #3: Mental Breaks Trump Burgeoning Bank Accounts

It is less painful and less expensive to learn from the mistakes of others, especially when it comes to estate planning. One of the best and last gifts you can leave your loved ones is a well-planned and organized estate.

Reference: Forbes (April 19, 2013) “What My Dad's Death Taught Me About Money”

 

To learn how to help your family avoid nightmares visit us at our web site

Have “The Talk” with Your Children Now in Fullerton, CA

There are a number of “talks” you have with your kids. We all are familiar with the infamous “the talk” – and a few others that are more easily avoided than had.

Add “the inheritance talk” to the short list of intergenerational talks too important to avoid. So, how do you prepare and execute this too-important-to-avoid chat?

To be blunt: there is no easy answer. Why? Because so much of the talk depends on what you have to leave, who is going to manage it, who is going to inherit it, and how soon are they going to get it?

The Wall Street Journal recently offered a pep-talk for estate planning parents in a recent article aptly titled, “The Inheritance Conversation. Ugh.”

One of the key reasons for this essential intergenerational communication is to prepare the inheriting generation for the attending responsibilities. One challenge, of course, is that any “inheritance” carries the risk of robbing a developing person of their work ethic.

In short, what makes you, your assets, and your heirs unique? That is what needs to be understood and communicated. The sooner you have the inheritance talk, the better it will be for all concerned.

Reference: The Wall Street Journal (April 19, 2013)

Have “The Talk” with Your Children Now in Fullerton, CA

There are a number of “talks” you have with your kids. We all are familiar with the infamous “the talk” – and a few others that are more easily avoided than had.

Add “the inheritance talk” to the short list of intergenerational talks too important to avoid. So, how do you prepare and execute this too-important-to-avoid chat?

To be blunt: there is no easy answer. Why? Because so much of the talk depends on what you have to leave, who is going to manage it, who is going to inherit it, and how soon are they going to get it?

The Wall Street Journal recently offered a pep-talk for estate planning parents in a recent article aptly titled, “The Inheritance Conversation. Ugh.”

One of the key reasons for this essential intergenerational communication is to prepare the inheriting generation for the attending responsibilities. One challenge, of course, is that any “inheritance” carries the risk of robbing a developing person of their work ethic.

In short, what makes you, your assets, and your heirs unique? That is what needs to be understood and communicated. The sooner you have the inheritance talk, the better it will be for all concerned.

Reference: The Wall Street Journal (April 19, 2013)

Inherited IRA Gotchas in Fullerton California

   

Inheriting an IRA is a different kettle of fish entirely. Any missteps will be punished by the IRS, too. So, how should you handle IRA money? Very carefully.

The Slott Report considered this matter in a recent article titled “Moving Inherited IRA Money? Be Careful.” If you inherit non-IRA money, plain and simple, then you could stick it in any bank account or investment and be done with it. Unfortunately, there are extra steps to consider when moving inherited IRAs.

For starters, you cannot move an inherited IRA into your own IRA if you are a non-spouse beneficiary. What if the financial institution where the account is held charges too much or another institution has better investment options? How do you move the inherited non-spousal IRA? The direct approach, naturally.

In a direct IRA transfer the first bank cuts the check to the second bank, for your “benefit” as beneficiary but NOT in your “name.” If the check is made payable to you, then it’s already too late. The tax deferral advantage of the IRA will be lost and taxes due. Moreover, in the transfer the receiving IRA has to be of the same kind of IRA (i.e., from a traditional IRA to traditional IRA, or from Roth to Roth).

Indeed, there are lots of little details associated with inherited IRAs. It really pays to have competent legal and tax counsel before you make a move. Otherwise, there can be some hefty taxes to pay at ordinary income tax rates.

Reference: The Slott Report (March 5, 2013) “Moving Inherited IRA Money? Be Careful”

…You have to be really careful when moving inherited IRA money. If it’s not done correctly, the entire IRA will be deemed paid out and taxed.

To learn more about Inherited IRA Gotchas in Fullerton California

Decanting Isn’t Just for Wine, but Irrevocable Trusts Too (Fullerton California)

Irrevocable trusts are powerful tools in the estate planner’s tool belt. They have a life of their own (of sorts), running like a well-oiled machine from the start. Unfortunately, the “irrevocable” nature of your irrevocable trust can be its Achilles heel, too. What happens if the original design of your irrevocable trust now runs contrary to your current objectives?

Enter “decanting.”

A recent article in Barron’s explored this common dilemma in an article with a catchy title: “How to Bust a Trust.”

The “irrevocability” of an irrevocable trust makes changing the trust a very difficult practice under normal circumstances. Normally, this is a good thing. Why have all of the time, effort, and money you invested to plan your estate be undone? Accordingly, the traditional process for changing the terms of an irrevocable trust has been rightfully onerous.

Unfortunately, it’s not entirely uncommon that the machine needs some retooling, let alone re-lubricating. Perhaps the laws have change significantly, and your original goals for your loved ones have proven unworkable or even detrimental to them. In a worst case scenario, the inheritance could become a curse rather than a blessing.

In short, to “decant” the trust is to work around those harsh legal and people conditions, realigning the trust to conform to the new environment. The decanting process involves pouring the assets from one vessel to another – from one trust to a new form of the trust or an entirely different trust. Like a fine wine, decanting breathes new life into the assets once held in a trust that no longer suits its purposes.

This is not a do-it-yourself project, however. It can prove to be complex rather quickly. In fact, at present, decanting is only possible in 18 states. Consequently, the laws of your state will determine whether the process is available, as it matters where your trust exists.

For more on decanting and more obligatory wine references, be sure to read the original article. This is information worthy of your consideration whether you are establishing your family trust now, are a trustee, or a beneficiary.

Reference: Barron’s (March 2, 2013) “How to Bust a Trust”

In the past, if a trustee wanted to alter an irrevocable trust, a costly legal process was the only way. Now, "decanting" is becoming a more popular and easier way to do this.

 

To Learn More about Decanting  and Irrevocable Trusts  in Fullerton California visit click here.

The Basis for the Basis of Inherited Stock

I just inherited some stock from my uncle, and I know that he bought the stock for more than the present cost. Should I find the original cost, or do I use the cost as of the date I inherited the stock?

The cost of anything is actually a little hard to pin down. Ask any accountant or business owner. Nevertheless, “cost basis” is incredibly important when it comes tax time, especially if it was a bequest or gift.

So what if you inherited stock? It’s fairly common, but how do you determine the value for that? That’s the complicated calculus of the “cost basis.”

If you think about it, stock represents a value that is forever changing on the basis of the market itself. Those ups and downs of the market can make it a bit difficult to calculate actual gain over the life of one individual. The wrinkle of how to count for those changing values when stock passes from the hands of that one individual to another makes the wrinkle more challenging.

For a basic introduction to “cost bass” and the value of inherited stock, consider reading a recent Kiplinger article titled “Cost Basis for Inherited Stock.”

When arranging your estate, planning for your assets means understanding what those assets are and their value to your heirs. Accordingly, this notion of cost basis is vital to you and your heirs.

Reference: Kiplinger (April [edition], 2013) “Cost Basis for Inherited Stock”

Will Your Estate be a Blessing or a Curse?

Though many wealthy families attend to tax, financial and legal planning, with expert advice and well-developed strategies, they often neglect psychological planning. The consequences can be dire.

There are two sides to every coin. Will the inheritance you leave to loved ones be a blessing or a curse? In the end, it’s up to you.

If you are looking for some guidance on this matter, then consider two intriguing articles by the same author. Each article reaches a different conclusion. The articles recently appeared in Forbes and are titled “Why Family Wealth Is A Curse” and “Why Family Wealth Is A Blessing.” Interestingly, the author is a member of the family that founded the Georgia-Pacific Corporation.

The curses the author identifies are “too much too soon,” “too much of a financial focus,” and “ingratitude.” In contrast, the author notes blessings that include “love,” “choices,” and “gratitude.”

So, how does one help ensure that your own inheritors land safely on the “blessings” side? The author recommends family “open communication” and “teamwork” between and among family members, as well as intergenerational.

While the article is written from the perspective of an “inheritor,” there is much to glean from it when planning your own estate. One thing is certain: the failure to prepare your loved ones for their inheritance, then to protect them from it (and it from them) can be hazardous to your inheritors and to your wealth.

References:

Forbes (March 1, 2013) “Why Family Wealth Is A Curse”

Forbes (March 4, 2013) “Why Family Wealth Is A Blessing”

The Difficulties of Disinheritance

Disinheriting someone can be a way to haunt a family member from beyond the grave, but there may be pragmatic reasons involved.

When it comes to estate planning, most people focus on the distribution of their assets to heirs ... but some are more concerned with not distributing assets to certain heirs. If you are among them, be forewarned that disinheritance, for whatever reasons, can lead to hurt feelings and even contentious legal battles.

A recent article from Reuters, “Disinheriting someone is not easy,” illustrates some of the many reasons people choose not to leave assets to certain heirs. The reasons are as varied as the assets involved, and may include anything from hard feelings within a family to a desire to "equalize" wealth among adult children with differing degrees of financial success. 

If you choose to disinherit someone, realize that some classes of heirs have legal rights that cannot be violated, such as spouses and minor children. Reuters explains it well:

Just as you cannot tell a divorce judge that you refuse to split assets or pay alimony, you cannot leave your surviving spouse's house and all of the money to a child or some other family member. Using language to disavow and disinherit your spouse will not help ...  the spouse can waive the will and receive whatever he or she is entitled to under state law. Minor children are also protected by the courts. Whatever financial support the minor is entitled to receive, he or she will get, assuming the money is available.

Regardless of the reason(s) you may have to disinherit someone, be sure to discuss them with your estate planning attorney. Properly drafted legal documents can help ensure your wishes are followed, as well as prevent unintended consequences such as hurt feelings or court battles. Simply put, “disinheritance” is not necessarily an ugly word, but it can turn ugly even when you do it for the right reasons if not done properly.

Reference: Reuters (January 31, 2013) “Disinheriting someone is not easy”