Lifetime Asset Protection Trusts: Airtight Asset Protection for Your Child’s Inheritance—Part 1

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As a parent, you’re likely hoping to leave your children an inheritance. But without taking the proper precautions, the wealth you pass on is at serious risk of being accidentally lost or squandered. In some instances, an inheritance can even wind up doing your kids more harm than good.

Creating a will or a revocable living trust offers some protection, but in most cases, you’ll be guided to distribute assets through your will or trust to your children at specific ages and stages, such as one-third at age 25, half the balance at 30, and the rest at 35.

If you’ve created estate planning documents, check to see if this is how your will or trust leaves assets to your children. If so, you may not have been told about another option that can give your children access, control, and airtight asset protection for whatever assets they inherit from you.

A Lifetime Asset Protection Trust safeguards the inheritance from being lost to common life events, such as divorce, serious illness, lawsuits, or even bankruptcy.

But that’s not all they do.

Indeed, the best part of these trusts is that they offer you—and your kids—the best of both worlds: airtight asset protection AND use and control of the inheritance. What’s more, you can even use the trust to incentivize your children to invest and grow their inheritance.

Not all trusts are created equal
Most lawyers will advise you to put the assets you’re leaving your kids in a revocable living trust—and this is the right move. But most lawyers would structure the trust to distribute those assets outright to your children at certain ages or stages.

And if you’ve used an online do-it-yourself will or trust-preparation service like LegalZoom®, Rocket Lawyer,® or any of the newer options frequently coming online now, you will most likely be offered only two options: outright distribution of the entire inheritance to your kids when you die, or partial distributions when they reach specific ages and stages as described above.

Either of those options leaves their inheritance—and your hard-earned and well-saved money—at risk. Indeed, once assets pass into your child’s name, all the protection previously offered by your trust disappears.

For example, say your son racked up debt while in college, which can sometimes happen. If he were to receive one-third of his inheritance at age 25, creditors could take his inheritance if it’s paid to him in an outright distribution.

The same thing would be true if your daughter gets a divorce after receiving her inheritance, only it would be her soon-to-be ex-spouse who would claim a right to the funds in a divorce settlement. And despite what you may have heard about an inheritance remaining separate property, once it’s in your child’s hands, outright and unprotected, those assets are at risk.

There’s just no way to foresee what the future has in store for your kids—these kind of events happen to families every day. And that’s not even taking into consideration that your kids might simply blow through the money and spend it all on unnecessary luxuries.

Airtight asset protection—and easy access
Lifetime Asset Protection Trusts are specifically designed to prevent your hard-earned assets from being wiped out by such risks. And at the same time, your children will still be able to use and invest the funds held in trust as needed.  

For example, even though the assets are held in trust, your kids would be able to invest those funds in things like stocks, a business, or real estate, provided they do so in the name of the trust. Plus, if your child needs to pull money out to pay for college, a new home, or medical bills, they can do that by asking a Trustee—who’s chosen by you to oversee the money—for a distribution.

Or, as will cover next week, you may even allow your child to become Sole Trustee at some point in the future, allowing him or her to make decisions about the trust’s management.

Dedicated to empowering your family, building your wealth and defining your legacy,

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How Will the Coming Wealth Transfer Affect Your Family?

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Whether it’s called “The Great Wealth Transfer,” “The Silver Tsunami,” or some other catchy-sounding name, it’s a fact that a tremendous amount of wealth will pass from aging Baby Boomers to younger generations in the next few decades. In fact, it’s said to be the largest transfer of intergenerational wealth in history.

Because no one knows exactly how long Boomers will live or how much money they’ll spend before they pass on, it’s impossible to accurately predict just how much wealth will be transferred. But studies suggest it’s somewhere between $30 and $50 trillion. Yes, that’s “trillion” with a “T.”

A blessing or a curse?
And while most are talking about the benefits this asset transfer might have for younger generations and the economy, few are talking about its potential negative ramifications. Yet there’s plenty of evidence suggesting that many people, especially younger generations, are woefully unprepared to handle such an inheritance. 

Indeed, an Ohio State University study found that one third of people who received an inheritance had a negative savings within two years of getting the money. Another study by The Williams Group found that intergenerational wealth transfers often become a source of tension and dispute among family members, and 70% of such transfers fail by the time they reach the second generation.

Whether you will be inheriting or passing on this wealth, it’s crucial to have a plan in place to reduce the potentially calamitous effects such transfers can lead to. Without proper estate planning, the money and other assets that get passed on can easily become more of a curse than a blessing.

Get proactive
There are several proactive measures you can take to help stave off the risks posed by the big wealth transfer. Beyond having a comprehensive estate plan, openly discussing your values and legacy with your loved ones can be key to ensuring your planning strategies work exactly as you intended. Here’s what we suggest:

Create a plan: If you haven’t created your estate plan yet—and far too many folks haven’t—it’s essential that you put a plan in place as soon as possible. It doesn’t matter how young you are or if you have a family yet, all adults over 18 should have some basic planning vehicles in place.

From there, be sure to regularly review your plan (and update it immediately after major life events like marriage, births, deaths, inheritances, and divorce) throughout your lifetime.

Discuss wealth with your family early and often: Don’t put off talking about wealth with your family until you’re in retirement or nearing death. Clearly communicate with your children and grandchildren what wealth means to you and how you’d like them to use the assets they inherit when you pass away. Make such discussions a regular event, so you can address different aspects of wealth and your family legacy as they grow and mature.

When discussing wealth with your family members, focus on the values you want to instill, rather than what and how much they can expect to inherit. Let them know what values are most important to you and try to mirror those values in your family life as much as possible. Whether it’s saving and investing, charitable giving, or community service, having your kids live your values while growing up is often the best way to ensure they carry them on once you’re gone.

Communicate your wealth’s purpose: Outside of clearly communicating your values, you should also discuss the specific purpose(s) you want your wealth to serve in your loved ones’ lives. You worked hard to build your family wealth, so you’ve more than earned the right to stipulate how it gets used and managed when you’re gone. Though you can create specific terms and conditions for your wealth’s future use in planning vehicles like a living trust, don’t make your loved ones wait until you’re dead to learn exactly how you want their inheritance used.

If you want your wealth to be used to fund your children’s college education, provide the down payment on their first home, or invested for their retirement, tell them so. By discussing such things while you’re still around, you can ensure your loved ones know exactly why you made the planning decisions you did. And doing so can greatly reduce future conflict and confusion about what your true wishes really are.

Secure your wealth, your legacy, and your family’s future
Regardless of how much or how little wealth you plan to pass on—or stand to inherit—it’s vital that you take steps to make sure that wealth is protected and put to the best use possible. A good plan should facilitate your ability to communicate your most treasured values, experiences, and stories with the ones you’re leaving behind so you can rest assured that the coming wealth transfer offers the maximum benefit for those you love most.

Dedicated to empowering your family, building your wealth and defining your legacy,

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5 Estate Planning Must-Dos if You’re Getting Divorced—Part 1

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Divorce can be traumatic for the whole family. Even if the process is amicable, it involves many tough decisions, legal hassles, and painful emotions that can drag out over several months, or even years.

That said, while you probably don’t want to add any more items to your to-do list during this trying time, it’s absolutely critical that you review and update your estate plan—not only after the divorce is final, but as soon as possible once you know the split is inevitable.

Even after you file for divorce, your marriage is legally in full effect until your divorce is finalized. That means if you die while the divorce is still ongoing and you haven’t updated your estate plan, your soon-to-be-ex spouse could end up inheriting everything. Maybe even worse, in the event you’re incapacitated before the divorce is final, your ex would be in complete control of your legal, financial, and healthcare decisions.

Given the fact you’re ending the relationship, you probably wouldn’t want him or her having that much control over your life and assets. If that’s the case, you must act, and chances are, your divorce attorney is not thinking about these matters.

While California law limits your ability to completely change your estate plan once your divorce has been filed, the following are a few of the most important updates you should consider making as soon as possible when divorce is on the horizon.

1. Update your power of attorney documents for healthcare, financial, and legal decisions
If you are incapacitated by illness or injury during the divorce, who would you want making life-and-death healthcare decisions on your behalf? In the midst of divorce, chances are you’ll want someone other than your soon-to-be ex making these important decisions for you. If that’s the case, you must act immediately; don’t wait.

Similarly, who would you want managing your finances and making legal decisions for you? Considering the impending split, you’ll most likely want to select another individual, particularly if things are anything less than friendly between the two of you. Again, you must take action if you do not want your spouse making these decisions for you. Don’t wait.

2. Update your beneficiary designations
Failing to update beneficiary designations for assets that do not pass through a will or trust, such as life insurance policies and retirement accounts, is one of the most frequent—and tragic—planning mistakes made by those who get divorced. If you get remarried following your divorce, for example, but haven’t changed your IRA beneficiary designation to name your new spouse, the ex you divorced 10 years ago could end up with your retirement savings upon your death.

That said, once either spouse files divorce papers with the court, neither party can legally amend their beneficiaries without the other’s permission until the divorce is final. Given this, if you’re anticipating a divorce, you may want to consider changing your beneficiaries prior to filing divorce papers. If your divorce is already filed, once the divorce is finalized making these changes should be your number-one planning priority. In fact, put it on your to-do list right now!

Next week, we’ll continue with part two in this series on the critical estate-planning updates you should make when divorce is inevitable.

Dedicated to empowering your family, building your wealth and defining your legacy,

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3 Questions to Consider When Selecting Beneficiaries for a Life Insurance Policy

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Selecting a beneficiary for your life insurance policy sounds pretty straightforward. You’re just deciding who will receive the policy’s proceeds when you die, right?

But as with most things in life, it’s a bit more complicated than that. Keep in mind that naming someone as your life insurance beneficiary really has nothing to do with you: It should be based on how the funds will affect the beneficiary’s life once you’re no longer here.

It’s very likely that if you’ve purchased life insurance, you did so to make someone’s life better or easier in some way after your death. But unless you consider all the unique circumstances involved with your choice, you might actually end up creating additional problems for the people you love.

Given the potential complexities involved, here are a few important questions you should ask yourself when choosing your life insurance beneficiary:

1. What are you intending to accomplish?

The first thing to consider is the “real” reason you’re buying life insurance. On the surface, the reason may simply be because it’s the responsible thing for adults to do. But I recommend you dig deeper to discover what you ultimately intend to accomplish with your life insurance.

Are you married and looking to replace your income for your spouse and kids after death? Are you single without kids and just trying to cover the costs of your funeral? Are you leaving behind money for your grandkids’ college funds? Are you intending to make sure your business continues after you’re gone? Or perhaps your life insurance is in place to cover a future estate-tax burden?

The real reason you’re investing in life insurance is something only you can answer. The answer is critical, because it is what determines how much and what kind of life insurance you should have in the first place. And by first clearly understanding what you’re actually intending to accomplish with the policy, you’ll be in a much better position to make your ultimate decision—who to select as beneficiary.

2. What are your beneficiary options?

Your insurance company will ask you to name a primary beneficiary—your top choice to get the insurance money at the time of your death. If you fail to name a beneficiary, the insurance company will distribute the proceeds to your estate upon your death. If your estate is the beneficiary of your life insurance, that means a probate court judge will direct where your insurance money goes at the completion of the probate process.

And this process can tie your life insurance proceeds up in court for months or even years. To keep this from happening to your loved ones, be sure to name—at the very least—one primary beneficiary.

In case your primary beneficiary dies before you, you should also name at least one contingent (alternate) beneficiary. For maximum protection, you should probably name more than one contingent beneficiary in case both your primary and secondary choices have died before you. Yet, even these seemingly straightforward choices are often more complicated than they appear due to the options available.

For example, you can name multiple primary beneficiaries, like your children, and have the proceeds divided among them in whatever way you wish. What’s more, the beneficiary doesn’t necessarily have to be a person. You can name a charity, nonprofit, or business as the primary (or contingent) beneficiary.

It’s important to note that if you name a minor child as a primary or contingent beneficiary (and he or she ends up receiving the policy proceeds), a legal guardian must be appointed to manage the funds until the child comes of age. This can lead to numerous complications, so you should definitely consult with an experienced Family Law attorney like us if you’re considering this option.

3. Does your state have community-property laws?

If you’re married, you’ll likely choose your spouse as the primary beneficiary anyway. But what if you want to choose a close friend, your favorite charity, or simply the person you think needs the money most.

In California, community-property laws dictate that your spouse is entitled to the policy proceeds and will have to sign a form waiving his or her rights to the insurance money if you want to name someone else as beneficiary. Sometimes it makes sense to name your trust as the primary beneficiary instead of your spouse. If you go that route, you’ll definitely want to talk to a trusted estate planning attorney before you sign anything because of the extra complications.

The team at my firm doesn’t just draft documents; we guide you to make informed, educated, and empowered choices to plan for yourself and the ones you love most. Contact us today if you have any questions about life insurance or other estate planning options.

Dedicated to empowering your family, building your wealth and defining your legacy,

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The Ins and Outs of Collecting Life Insurance Policy Proceeds

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Life-Insurance Stock 91024

Unlike many estate assets, if you’re looking to collect the proceeds of a life insurance policy, the process is fairly simple (provided you’re named as the beneficiary). That said, following a loved one’s death, the whole world can feel like it’s falling apart, and it’s helpful to know exactly what steps need to be taken to access the insurance funds as quickly and easily as possible during this trying time.

And if you’ve been dependent on the deceased for regular financial support and/or are responsible for paying funeral expenses, the need to access insurance proceeds can sometimes be downright urgent.

Here is an outline of typical procedure for claiming and collecting life insurance proceeds, along with some of the common hiccups in the process.
Filing a claim
To start the life insurance claims process, you first need to identify who the beneficiary of the life insurance policy is—are you the beneficiary, or is a trust set up to handle the claim for you?

We often recommend that life insurance proceeds be paid to a trust, not outright to a beneficiary. This way, the life insurance proceeds can be used by the beneficiary, but the funds are protected from lawsuits and/or creditors that the beneficiary may be involved with—even a future divorce.

If a trust is the beneficiary, the trustee will need to notify the insurance company of the policyholder’s death and provide them with a certificate of trust and a death certificate when one is available.

From there, the insurance company typically sends the beneficiary (or the trustee if a trust is named as beneficiary) more in-depth instructions and forms to fill out.

Multiple beneficiaries
If more than one adult beneficiary was named, each person should provide his or her own signed and notarized claim form. If any of the primary beneficiaries died before the policyholder, an alternate/contingent beneficiary can claim the proceeds, but he or she will need to send in the death certificates of both the policyholder and the primary beneficiary.

Minors
While policyholders are free to name anyone as a beneficiary, when minor children are named, it creates serious complications, as a minor child cannot receive life insurance benefits directly until they reach the age of majority.

If a child is named as a beneficiary and has yet to reach the age of majority, the claim proceeds will be paid to the child’s legal guardian, who will be responsible for managing those funds until the child comes of age. Given this, in the event a minor is named you’ll need to go to court to be appointed as legal guardian, even if you’re the child’s parent. Therefore we recommend never naming a minor child as a life insurance beneficiary, even as a backup to the primary beneficiary.

Rather than naming a minor child as a life insurance beneficiary, it’s often better to set up a trust to receive the proceeds. By doing that, the proceeds would be paid into the trust, and whomever is named as trustee will follow the steps above to collect the insurance benefits, put them in the trust, and manage the funds for the child’s benefit.
Insurance claim payment
Provided you fill out the forms properly and include a certified copy of the death certificate, insurance companies typically pay out life insurance claims quickly. In fact, some claims are paid within one-to-two weeks of the start of the process, and rarely do claims take more than 60 days to be paid. Most insurance companies will offer you the option to collect the proceeds via a mailed check or transfer the funds electronically directly to your account.

Sometimes an insurance company will request you to send in a completed W-9 form (Request for Taxpayer Identification Number and Certification) from the IRS to process a claim. Most of the time, a W-9 is requested only if there is some question or issue with the records, such as having an address provided in a claim form that doesn’t match the one on file.

While collecting life insurance proceeds is a fairly simple process, it’s always a good idea to consult with a trusted legal advisor to ensure the process goes as smoothly as possible during the often-chaotic period following a loved one’s death.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Signature Blogs

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What is a Charitable Remainder Trust?

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People Discussion Meeting Give Help Donate Charity Concept

 

 

If you have highly appreciated assets like stock and real estate you want to sell, it may make sense to use a charitable remainder trust (CRT) to avoid income and estate taxes—all while creating a lifetime income stream for yourself or your family AND supporting your favorite charity.

A CRT is a “split-interest” trust, meaning it provides financial benefits to both the charity and a non-charitable beneficiary. With CRTs, the non-charitable beneficiary—you, your child, spouse, or another heir—receives annual income from the trust, and whatever assets “remain” at the end of the donor’s lifetime (or a fixed period up to 20 years), pass to the named charity(ties).

How a CRT works
You work with us to set up a CRT by naming a trustee, an income beneficiary, and a charitable beneficiary. The trustee will manage the trust’s assets to produce income that’s paid to you or another beneficiary.

The trustee can be yourself, a charity, another person, or a third-party entity. However, the trustee is not only responsible for seeing that your wishes are carried out properly, but also for staying compliant with complex state and federal laws, so be sure the trustee is well familiar with trust administration.

With the CRT set up, you transfer your appreciated assets into the trust, and the trustee sells it. Normally, this would generate capital gains taxes, but instead, you get a charitable deduction for the donation and face no capital gains when the assets are sold.

Once the appreciated assets are sold, the proceeds (which haven’t been taxed) are invested to produce income. As long as it remains in the trust, the income isn’t subject to taxes, so you’re earning even more on pre-tax dollars.

Income options
You have two options for how the trust income is paid out. You can receive an annual fixed payment using a “charitable remainder annuity trust (CRAT).” With this option, your income will not change, regardless of the trust’s investment performance.

Or you can be paid a fixed percentage of the trust’s assets using a “charitable remainder unitrust (CRUT),” whereby the payouts fluctuate depending on the trust’s investment performance and value.

 Tax benefits

Right off the bat, as mentioned above, you can take an income tax deduction within the year the trust was created for the value of your donation—limited to 30% of adjusted gross income. You can carry over any excess into subsequent tax returns for up to five years.

And again, profits from appreciated assets sold by the trustee aren’t subject to capital gains taxes while they’re in the trust. Plus, when the trust assets finally pass to the charity, that donation won’t be subject to estate taxes.

You will pay income tax on income from the CRT at the time it’s distributed. Whether that tax is capital gains or ordinary income depends on where the income came from—distributions of principal are tax free.

 If you have highly appreciated assets you’d like to sell while minimizing tax impact, maximizing income, and benefiting charity, give us a call, so we can find the best planning options for you.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Signature Blogs

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Doesn’t Everything Automatically Go To My Spouse And Kids When I Die Anyway?

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Probate-court-hearingMany people think that if they die while they are married, the law dictates everything they own goes directly to their spouse or children. They’re thinking of state rules that apply if someone dies without leaving a will. In legal jargon, this is referred to as dying “intestate.” In California’s case, the specifics will vary depending on the type of property held and the number of children you have, if any. However, the general rule is that your spouse will receive a certain share and the rest will be divided among your children.

Now that may seem like, “So far, so good,” right? Your spouse is getting an inheritance and so are the kids. But wait. Here are some examples of how the intestacy laws can – and do – fail many common family situations.

First off, if both parents of minor-aged children die intestate, then the children are almost always left without a legal guardian. Kids won’t automatically go to a godparent, even if that’s what everyone knew the parents had intended. Instead, a court will appoint someone to be the children’s guardian. In such situations, the judge may not make the decision that you, as a parent, would have made. In fact, sometimes the judge appoints the last person you would have wanted to have custody of your children.

It’s important to note that when it comes to asset division, in most cases, state intestacy law presumes that a family consists of a husband, wife, and their natural-born children. But, that’s not the way all families are structured, and things can become legally complicated for those other families quickly.

According to Wealth Management, one analysis counted 50 different types of family structures in American households – 50! Almost 18% of Americans have been remarried, and through adoption and stepfamilies, millions of children are living in blended families. The laws just haven’t kept up, and absurd results often occur for these types of families if they’ve relied on intestacy as their estate plan. For example, stepchildren that you helped raise (but didn’t legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may inherit everything from you.

Of course, with proactive estate planning, you can control your assets and essentially eliminate the risk of these crazy results.

Also, keep in mind that intestacy provides no asset protection or preservation benefits. Without any protections in place, an estate’s assets are vulnerable to creditors, lawsuits, and others who may claim entitlement to the property. These claims would take precedence over the statutory requirements for inheritance. In other words, the family won’t be first in line; they’ll be last. They’d only be able to inherit the scraps and leftovers.

The best way to safeguard and pass along what you’ve worked so hard to build is to do your own estate planning rather than leave things to the laws of intestacy. Protect yourself, your family and your assets by talking to a qualified estate planning attorney today.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024

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5 Things to Consider BEFORE Naming Beneficiaries

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family estate plan 91024Once you have decided whom you want to receive your assets — either from a will, trust, life insurance policy, retirement account, or bank account — understanding how they will inherit becomes important.

Here are five things you need to consider before naming beneficiaries:

  1. Beneficiaries of a will have to wait. Any assets you bequeath to a beneficiary via a traditional will have to wait for their money or property until the probate process has been completed. In some cases, this can take many months or even years — and if the estate is complex, the legal fees can deplete that inheritance. If you want to make it easier for your beneficiaries, consider creating a Revocable Living Trust as part of your estate plan. A trust does not go through probate; upon your death, the successor trustee distributes the assets to your beneficiaries.
  2. Retirement plan and life insurance policy benefits are paid directly. The assets in a life insurance policy or retirement plan are not subject to probate and pass to your (adult) beneficiaries directly. These beneficiaries will receive the assets after providing the account owner’s proof of death and a proof of identity for the beneficiary. Naming contingent beneficiaries is important; if the primary beneficiary predeceases you, the assets will likely go into your estate and will be subject to taxes.
  3. Minor children should not inherit directly. Naming a minor child as the beneficiary of a life insurance policy or other assets is never recommended. Because minor children cannot receive assets directly, the state could take over the assets and name someone to manage those assets on the child’s behalf. This can result in additional expenses that eat into that inheritance, and those assets may not be managed according to your wishes. Instead, the wise move is to create a trust to hold these assets for the benefit of a minor child and name a successor trustee to oversee the management and distribution of the funds in a way that complies with your wishes.
  4. Give careful consideration to naming retirement plan beneficiaries. Studies have shown that most beneficiaries of a retirement plan take the cash immediately, which may not be your intention. Naming your estate as beneficiary of a retirement plan is also not recommended since doing so would not allow your spouse or younger beneficiary to take advantage of an IRA rollover or the “stretch” IRA option that could allow your IRA to grow tax-deferred over many years.
  5. If there are multiple beneficiaries, name them all. If there are multiple beneficiaries for an insurance policy or retirement plan, don’t make the mistake of just naming one person — say, the oldest child — and assuming they will make the proper distributions. Instead, designate a separate share for each beneficiary. If one of your beneficiaries has special needs, create a trust for their share so any inherited assets don’t disqualify them from important government benefits.

One of the main goals of my law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Naming the correct beneficiaries, in the right way, is an important part of that process. Please let me know if you have any questions about this or if there’s anything else I can do to help.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

 

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Beneficial Beneficiary Benefits … Say That Three Times Fast!

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Legacy Planning 91024Every year about this time, my CPA friends and associates stock up on midnight oil and drop out of sight. This is their busy season, after all. You can help them manage things by not giving them all your tax stuff at the last minute. This will also help you help yourself, too.

By not waiting until the last minute, you’ll give yourself time for some important things (other than filing your taxes) that should to be looked after this time of year. As you’re going through your various accounts to gather info for your accountant, take just a little extra time to review the beneficiaries on each of those accounts.

It is not uncommon for people to list beneficiaries when they first open accounts but then to never look at them again. Unfortunately that often ends up costing their heirs and estates – sometimes dearly. Ex-spouses inherit large sums of money every day, and high court rulings have upheld beneficiary designation forms, even if they were incredibly out of date or even if the ex-spouse waived their interest to the account in a divorce decree!

Beneficiary designation forms even trump Wills, too. Whoever is designated as the beneficiary on the account or plan form gets the money automatically, no matter what your Will says. And people often make the mistake of listing minor children as beneficiaries which leads to legal complications, court involvement, and loss of control.

With all that in mind, here are some things you can do this tax season to ensure the people you WANT to be your beneficiaries are your ACTUAL beneficiaries:

  • Review, and if necessary, update transfer on death (TOD) or payable on death (POD) forms for all your bank and brokerage accounts.
  • Review, and if necessary, update beneficiary forms for your retirement accounts (IRAs, 401(k)s, Roth IRAs, etc.), pension plans, life insurance policies and annuities.
  • Review, and if necessary, update beneficiary forms for any 529 college accounts you have established.
  • Make sure you do NOT have minor children listed as the beneficiaries of any of these accounts. If you do, call us to get that rectified.
  • You do have a Living Trust, right? Good. Ensure your Trust is the beneficiary of each of these accounts (be sure to talk with the lawyer who set up your Trust or call us for a review when it comes to retirement accounts, as these can be tricky and it may be preferable to make your spouse the primary beneficiary of the retirement account or set up a special retirement account Trust).

If you don’t already have a Trust – or have one which hasn’t been reviewed or updated in several years – make 2015 the year to get that taken care of. Simply call us to schedule a Family Estate Planning Session so we can help you identify the best strategies to provide for and protect the financial security of your loved ones.

To you family’s health, wealth, and happiness,
Marc Garlett 91024

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How to Correctly Name Beneficiaries for Your IRAs

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Nest eggs 91024As I help clients get their financial affairs in order, one of the most common mistakes I see is how beneficiaries are named on IRAs. As we kick off the New Year I want to encourage you to set aside just a few moments to look at how you’ve named the beneficiaries of your IRAs.

You see, you could be unintentionally reducing your family’s wealth potential if you do not properly designate the beneficiaries of your IRAs. The ramifications of this mean your IRA assets could pass to the wrong people or entities, so how you execute your beneficiary designations is critically important.

Here are some issues to be aware of regarding your IRA beneficiaries:

Spouse: A surviving spouse can either roll the funds into his or her existing IRA or establish an inherited IRA and take distributions that will be calculated based on his or her life expectancy. It is often (though not always) a good idea to name your spouse as the primary beneficiary of your IRA.

Children: Just like spouses, children can stretch required distributions from an inherited IRA over their own life expectancies. But be careful. Naming minor children as primary or even contingent beneficiaries is almost never a good idea.

Trusts: A trust can be named a beneficiary of an inherited IRA (and this is often the right thing to do), but there are a number of complex issues involved so be sure to consult with an attorney for guidance.

Contingent beneficiaries: A surviving spouse may wish to disclaim interest in an inherited IRA, so the assets can pass to children or grandchildren. Therefore, it is important to name secondary as well as primary beneficiaries for your IRA so assets remain within the control of your family. Naming the right contingent beneficiaries is often as important as naming the right primary beneficiary.

If you’d like to learn more about how to properly protect retirement accounts or other financial assets for loved ones or have other estate planning questions, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Estate Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.

Happy New Year to you and yours,
Marc Garlett 91024

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