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Retirement

5 Reasons To Protect Your Retirement Accounts Now

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During your lifetime, your retirement account has good asset protection, but as soon as you pass that account to a loved one, that protection evaporates. This means one lawsuit and POOF! Your life long, hard earned savings could be gone. Your heirs could be left penniless.

Protect Retirement Accounts

Fortunately, there is a solution to this problem. A special trust called a “Standalone Retirement Trust” (SRT) can protect inherited retirement accounts from your beneficiaries’ creditors. 

When your spouse, child, or other loved one inherits your retirement account, their creditors have the power to seize it and take it as their own.

If you’re like most people, you’re thinking of protecting your retirement account so your family can benefit – rather than the creditors. Here are 5 reasons to protect your retirement account:

  1. You have substantial combined retirement plans.  Spouses can use an SRT to shield one or the other from creditors. 
  2. You believe your beneficiary may be “less than frugal” with the funds.  Anyone concerned about how their beneficiary will spend the inheritance should absolutely consider an SRT as you can provide oversight and instruction on how much they receive – and when. 
  3. You are concerned about lawsuits, divorce, or other possible legal actions.  If your beneficiary is part of a lawsuit, is about to divorce, file for bankruptcy, or is involved in any type of legal action, an SRT can protect the inherited retirement accounts from those creditors. 
  4. You have beneficiaries who receive assistance.  If one of your beneficiaries receives, or may qualify for, a need-based governmental assistance program, it’s important to know that inheriting from an IRA may cause them to lose those benefits. An SRT can be drafted to avoid disqualification. 
  5. You are remarried with children from a previous marriage.  If you are remarried and have children from a previous marriage, your spouse could intentionally (or even unintentionally) disinherit your children.  You can avoid this by naming the spouse as a lifetime beneficiary of the trust and then having the remainder pass onto your children from a previous marriage after your spouse’s death.

You’ve Worked Hard To Protect & Grow Your Wealth – Let’s Keep It That Way

You worked hard to save the money in those retirement accounts and your beneficiaries’ creditors shouldn’t be able take it from them. Give us a call and let us show you how an SRT can help you protect your assets as well as provide tax deferred growth.

Warning: Don’t Let Creditors Inherit from You

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Shocking to most people, the retirement account you leave for your spouse can be seized in a divorce, lawsuit, or bankruptcy.

3 Options Available To Surviving Spouses

When your surviving spouse inherits your IRA, he or she generally has three options:

Creditors <a href=inherit from you” class=”wp-image-16243″ width=”257″ height=”171″/>
  1. Cash-out the inherited IRA and pay the income tax.  
    • WARNING! The cashed-out IRA will not have creditor protection and accelerates taxation.
  2. Maintain the IRA as an inherited IRA.  
    • WARNING! The inherited IRA will not have creditor protection.
  3. Roll over the inherited IRA and treat it as his or her own.
    • WARNING! This may offer some creditor protection; however, not in all cases. 

It’s frustrating to many that a stranger can swoop in and take their hard-earned money; fortunately, there’s a solution and that solution is a retirement trust.

Standalone Retirement Trusts Provide Protection

A Standalone Retirement Trust (SRT) is a special type of trust designed to be the beneficiary of your retirement accounts after you die. It can protect your assets from your beneficiary’s creditors.  We can include trust provisions that specifically benefit your spouse in situations such as:

  • Second marriages
  • Divorce
  • Lawsuits from car accidents, malpractice, or tenants
  • Business failure
  • Bankruptcy
  • Medicaid qualification  

Want To Know More? 

The bottom line is that a properly drafted SRT is often your best option for protecting your retirement assets (and providing the bonus of tax-deferred growth). Want to know more?  Contact us today to schedule a conversation. We look forward to working with you.  Contact us today! Call our office at 832.408.0505 or schedule your appointment right now.

Organizing for Tax (and Estate Planning) Season

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It’s the start of a new year, which means tax season — and this year’s April 15th IRS filing deadline — is just around the corner.  Soon you’ll be receiving tax forms such as your W-2 or 1099s, and you’ll start thinking about the life events that could affect your taxes in various ways.

This flurry of tax prep activity is the perfect opportunity to get your estate plan in order, too, and kill two birds with the proverbial stone.

Why?  Because as you run down your list of “tax prep” questions, you will find that your answers could also impact your estate plan.

Some things to think about:

  • Did you get married or divorced?  Did any of your children or grandchildren?
  • Did you welcome a child or grandchild into your family by birth or adoption?
  • Have any of your children or grandchildren reached the age of majority?
  • Have you dealt with illness or hospitalization?  Have you incurred medical expenses?
  • Did you buy or sell a new property or any other major assets, like a vacation home?
  • Did you move to another state?
  • Did you buy, sell, open, or close a business?
  • Have you made any charitable donations?
  • Do you have any new life insurance or pension plans?

After you’ve answered these questions, get to work on gathering the corresponding paperwork.  That might include deeds, policies, and contracts as well as bills and receipts.  Having all of this information on hand can help you prepare your tax forms and whip your estate plan into shape.

Here’s how your tax-related changes can affect your estate planning.

If you already have an estate plan, your number one goal is to make sure everything still represents your wishes, taking into account the past year’s events.  Maybe because of a change in circumstances, you need new or updated estate planning documents.  Perhaps it’s time for an LLC and an update to your living trust now that you have a small business, or maybe you need to update beneficiaries because of births or deaths.  Or, if you’ve had a change of heart about who should inherit from you, you also need to update your plan.

If you don’t have an estate plan, having this information at your fingertips sets you up for a productive conversation with your estate planning attorney.  After reviewing your legacy goals, your lawyer can draw up key documents, such as:

  • A will. Among other things, this document can ensure that your wishes — and not the laws of the state — determine how to distribute your estate.
  • A revocable living trust. In addition to, or as an alternative to a will, you can establish a living trust, which allows your estate to bypass the potentially long and costly probate process upon your death, gives you extra privacy, and helps to avoid the potentially costly guardianship or conservatorship court process (sometimes called “living probate”) if you become incapacitated.
  • A living will. This document expresses your desires regarding life-sustaining medical treatment, if you become incapable of communicating your wishes.
  • A durable power of attorney. This appoints someone to step in and take over your financial affairs if you are unable to do so, reducing the possibility of hard feelings among loved ones or the need for court intervention.

It’s a new year, and new possibilities are in the air.  As long as you’re getting started on your taxes, take a few extra moments to get the ball rolling on your estate planning as well.  By getting organized in this way, you’ll be well on your way to making 2021 an amazing year.

As Anne Burrell once observed, “Organizing ahead of time makes the work more enjoyable.  Chefs cut up the onions and have the ingredients lined up ahead of time and have them ready to go.  When everything is organized you can clean as you go and it makes everything so much easier and fun.”

Are you ready to develop a comprehensive estate plan designed to achieve your goals and protect your family?  Contact us or call our offices today at 832.408.0505 to get started.

Financial Firms Roll Out Form Aimed at Stopping Financial Elder Abuse

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With cases of financial exploitation of the elderly on the rise, advisors who work with older clients are looking for ways to head off the abuse before it happens.  Enter the “Emergency Contact Authorization Form,” a document in which clients can list a trusted person who should be contacted if an advisor suspects a client is starting to lose their mental capacity or, worse yet, being financially abused or scammed.

How Does an Emergency Contact Authorization Form Work?

The Emergency Contact Authorization Form is a document which allows you to identify someone your financial advisor can contact if your advisor becomes concerned about your ability to continue to manage your finances or believes you are being taken advantage of financially by a relative, friend, caregiver, or even a complete stranger.

The Emergency Contact Authorization Form does not take the place of your “Durable Power of Attorney,” which is a legal document in which you give a person you trust the authority to make financial decisions and carry out financial transactions on your behalf.  Instead, the form allows you to designate an individual your advisor can contact to discuss concerns they have about your slipping mental capacity, unusual activity in your accounts, requests for transfers of large sums of money to an unknown person or a foreign bank account, and the like.  This designated individual could be the same person as the agent named in your Durable Power of Attorney or some other trusted person in your life. The idea is that once your advisor makes your emergency contact aware of the issues, your contact can reach out to you to determine if the advisor’s concerns are legitimate.

What Should You Do?

Since your financial advisor is in a unique position to know your financial history (for instance, you take a trip to Europe every June, you have been helping your grandkids with their college tuition, you like to make your charitable donations in October to avoid the year-end rush), your advisor is also in a unique position to spot unusual activity and requests.  Thus, when your advisor asks you fill out an “Emergency Contact Authorization Form,” carefully consider who you should name, discuss your choice with your advisor, complete the form, let the person you’ve chosen know that they have been designated, and give that person your advisor’s contact information.

Nonetheless, keep in mind that while an Emergency Contact Authorization Form is a good start, it will only work at the institution where it is on record.  To insure that all of your financial accounts will continue to be managed and your bills will get paid if you become mentally incapacitated, you will need to sign a Durable Power of Attorney. 

Please contact our office if you have any questions about Emergency Contact Authorization Forms, Durable Powers of Attorney, or if you suspect a family member or friend is being financially exploited or abused.

Caution: Your Traditional Asset Protection Plan is Set Up to Fail

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You may be surprised to learn that not only has asset protection planning been around for a long time, but you have already engaged in it at some point during your life.  In fact, you probably have one or more types of traditional asset protection planning in place at this very moment.  The problem is in many cases the type of planning you have right now won’t be enough to protect you and your family.

What is Asset Protection Planning?Estate Planning Diagram

Asset protection planning is done to preserve and protect your property in advance of a claim, or the threat of a claim.  In other words, this type of planning will not be effective to shield your property from an existing claim.  Instead, it must be done long before there is even the hint of a claim.

The goals of asset protection planning are to provide an incentive for settling a claim, improve your bargaining position, offer options when a claim is asserted, and, ultimately, deter litigation.

What Is Traditional Asset Protection Planning, and Why Does It Often Fail?

There are several types of traditional asset protection planning that have been around for years.  The most common is liability insurance – automobile, homeowners, umbrella, officers and directors, malpractice, and the like.  You probably have at least one liability policy in place right now.  Unfortunately, liability insurance may actually encourage a lawsuit since it is perceived as “easy money.”  Aside from this, liability insurance often fails because the coverage is inadequate, the policies have extensive exclusions, or the carrier becomes insolvent.

Another common type of traditional asset protection planning is the use of a business entity, such as a corporation, to segregate business assets and liabilities from personal assets and liabilities.  But while a corporation may shelter your personal assets from a lawsuit filed against the corporation, the opposite is not true – if you, as the shareholder of a corporation, are personally sued, your shares of stock in the corporation are not protected from a judgment entered against you.  Of course, it is possible that if your corporation fails to observe certain formalities, then the “corporate veil” may be pierced and your personal assets will become vulnerable to a judgment entered against the corporation.

The final common type of traditional asset protection planning is established under state law and allows residents to exempt specific assets from the claims of creditors.  This may include protection for property owned jointly by spouses (“tenancy by the entirety” ownership), a primary residence (“protected homestead”), the cash value of life insurance, investments held in a retirement account, and annuities.  Nonetheless, these state exemptions are often subject to limitations, such as placing a cap on the value or land area of the protected homestead.

What Should You Do?

You may think that only wealthy people need to do advanced estate planning.  The truth is anyone who has accumulated any amount of wealth can be sued for just about any reason.  The only way to protect you and your family is to engage in more advanced forms of asset protection planning such as irrevocable trusts and sophisticated business structures.

This office can help you go beyond traditional asset protection planning by creating a comprehensive plan that will be custom-tailored to your family situation and financial status.

Call or contact us today and find out how to better protect your family.

How Does an IRA Fit Into Your Estate Plan?

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When you think of IRAs, you probably think of retirement. But what happens to your IRA money after you’re gone? The answer depends on how you go about creating your estate plan and selecting beneficiaries, and you might be surprised to find out that your money could end up with the wrong people or cause an unexpected tax bill if you don’t take action ahead of time.

What your IRA means for your estate planRetirement Planning - Roth, 401k, IRA

Individual retirement accounts (IRAs) are often one of the biggest financial accounts you invest in over the course of your lifetime. When you’re working on your trust, will, and other documents contained in your estate plan, you have to consider all the “big stuff” like your IRA, your house, and your small business, to name a few. But unlike the way we may use some trusts for your family, IRAs have limited lifetime planning opportunities.

IRAs are also subject to income tax (yes – even one you inherit), even though the estate tax or death tax only applies to large estates over $11.4 million (this will change in the future). Leaving your IRA to a spouse is a common choice, but you can’t assume that your IRA will automatically be distributed to your surviving spouse. Your spouse must be explicitly named as its beneficiary through a proper beneficiary form.

Common IRA mistakes

One of the most common mistakes people make is letting their IRA beneficiary forms become out of date after a divorce, the birth of a child or grandchild, or another major life event that would alter their choice of beneficiary.

Another misstep to avoid is naming your own estate as the beneficiary of your IRA. If you name a beneficiary such as your spouse or child, they’ll be in the position to make that money grow into even more wealth over time by using the so-called “stretch out” feature of these accounts. If your own estate is the beneficiary, the money will be passed onto your loved ones in as little as five years (and possibly even faster), resulting in greatly accelerated (and often higher) taxation and a halt to the IRA’s potential growth over time. A bad result all around.

If you decide to leave your IRA to your minor children, you can cause a less-than-ideal situation by forgetting to appoint a guardian to oversee the IRA until your kids are old enough to inherit the IRA. Without a guardian, IRAs left to underage children can end up going to exes or other people you might not wish to share your wealth with. Better than a guardian, you can create an IRA trust to receive the IRA distributions, providing long-term financial support for your children or grandchildren and protection against meddlesome exes or others you don’t want to be involved in your children’s inheritance.

IRAs and estate and income taxes

It’s important to sit down with an estate planning attorney to determine how your IRA will be taxed and plan accordingly. For those with large estates, a life insurance policy and life insurance trust could be taken out to offset the cost of those estate taxes for your beneficiary. Remember, in addition to estate taxes for those with a large estate, your IRA distribution will also trigger an income tax for your recipient, regardless of the size of your estate. Roth IRAs are an exception to the income tax for beneficiaries. Whether a Roth IRA makes sense is something you can explore with us, your tax advisor, and your financial planner. Like many legal, tax, and financial strategies there are no one-size-fits-all solutions.

Because of the estate and income taxes that occur when IRAs are passed on to beneficiaries, they’re an excellent way to include some charitable giving as part of your estate plan. If you donate your IRA value to a charity, you’ll have a charitable contribution deduction as well as the ability to bypass loss of the IRAs value through income tax. If you are interested in benefiting your church or another charitable goal, it’s always an excellent idea to bring this up with us as your estate planning attorney and with your financial advisor as well, so we can help you build a plan that lets you give back.

Turning even a modest IRA into a huge advantage for your family

One way to make the most of an inherited IRA is to take a stretch-out approach. This strategy lets your beneficiary stretch the length of time over which they’ll be collecting money from the IRA, giving it more time to accrue growth without income taxes eating away at it. When this is paired with a retirement trust, the result can be a huge, long-term inheritance for your family, even if your IRA is only a modest amount. This is just one of several ways you can work with estate planning attorneys to make sure your loved ones get the most out of your hard-earned wealth for years to come.

Even though passing your IRA to your spouse or onto the next generation may seem relatively straightforward, there are plenty of pitfalls along the way without the guidance of an expert. Get in touch today by calling our office at 832.408.0505, and we’ll review your current IRA beneficiary forms to make sure everything is up to date and works to achieve your goals.