IRA Beneficiary Designation: How to Turn a Modest Inheritance Into Millions for Your Family

How would you like to turn your modest tax-deferred account into millions for your family? Depending on whom you name as beneficiary, you can keep this money growing tax-deferred for not only your and your spouse’s lifetimes, but also for your children’s or grandchildren’s lifetimes. That can turn even a modest inheritance into millions.

1) Don’t I have to use this money for my retirement?

When you reach a certain age, usually 70 1/2, Uncle Sam says you must start taking your money out. (This is called your required beginning date.) But if you don’t use all this money before you die, naming the right beneficiary can keep it growing tax-deferred for decades.

2) How much will I have to take out?

Calculating the amount you must withdraw each year (your required minimum distribution) is much easier now than it used to be. Each year, you divide the year-end value of your account by a life expectancy divisor from the Uniform Lifetime Table (provided by the IRS). The result is the minimum you must withdraw for that year. You can always take out more.

For example, the divisor at age 70 is 27.4. If your year-end account balance is $100,000, you divide $100,000 by 27.4, making your first required minimum distribution $3,650. Each year the divisor is smaller, but it never goes to zero. Even at age 115 and older, the divisor is 1.9. “To recalculate or not to recalculate” is no longer an issue. Everyone now gets the benefit of recalculating their life expectancy.

3) Doesn’t my beneficiary affect my distribution?

Not any longer. Now, almost everyone uses the same chart to calculate distributions, even if you have no beneficiary. After you die, distributions are based on your beneficiary’s life expectancy (or the rest of your life expectancy if you die without one.) Naming the right beneficiary is still critical to getting the most tax-deferred growth. That’s much easier to do now, because you are no longer locked into the beneficiary you name when you take your first distribution.

Additional questions regarding IRA beneficiary designation will be posted in the coming weeks.  In the meantime, if you have any questions please contact our Estate Planning Attorney in Woodland Hills, CA today.

7 Benefits of a Life Insurance Trust

  1. Provides immediate cash to pay estate taxes and other expenses after death.
  2. Reduces estate taxes by removing insurance from your estate.
  3. Inexpensive way to pay estate taxes.
  4. Proceeds avoid probate and are free from income and estate taxes.
  5. Gives you maximum control over insurance policy and how proceeds are used.
  6. Can provide income to spouse without insurance proceeds being included in spouse’s estate.
  7. Prevents court from controlling insurance proceeds if beneficiary is incapacitated.

For more information about Life Insurance Trusts, you can contact our Estate Planning Attorney in Woodland Hills, Los Angeles today.

Estate Planning Attorney KC Marie Knox of Anker Reed HSC to be Adjunct Law Professor

Attorney KC Marie Knox

Los Angeles Attorney KC Marie Knox

Los Angeles Estate Planning Attorney KC Marie Knox of Anker, Reed, Hymes, Schreiber and Cohen, A Law Corporation (Anker Reed HSC) has accepted an offer to be Adjunct Law Professor at Abraham Lincoln University School of Law.

Esteemed attorney KC Marie Knox will be teaching Wills, Trusts and Estates starting this winter quarter.

About Abraham Lincoln University School of Law:

Abraham Lincoln University (ALU) provides law education via online legal programs for those desiring to take the complete program online, but ALU does not stop there in giving students what they need. ALU offers an interactive education for students so that they know where to go to get their questions answered and to discuss classroom topics.

In-classroom interaction occurs on weekday nights and weekend morning classes. Students and faculty communicate through Live Chat Rooms, even during lecture time, allowing a free-flowing discourse. Lectures are recorded and are made available online for students who missed lectures.

Students also can set up their own Live Chat Rooms serving as small study groups. While traditional law schools and law programs in California have not fully embraced the potential for online student study groups, Abraham Lincoln University School of Law has been a pioneer in creating new ways for students to engage and study through our innovative online legal programs. Abraham Lincoln University School of Law will always strive to be at the cutting edge.

Follow the link to learn more about KC Marie Knox, Estate Planning Attorney in Woodland Hills, Los Angeles, Ca.

When Should I Set Up an Insurance Trust? : Understanding Life Insurance Trusts

This is part 4 of the blog series discussing life insurance trusts and estate taxes.

14. When should I set up an insurance trust?

You can set up one any time, but because the trust is irrevocable, many people wait until they are in their 50s or 60s. By then, family relationships have usually settled – and you know whom you want to include as a beneficiary.

15. Are there any restrictions on transferring my existing policies to an insurance trust?

Yes. If you die within three years of the date of the transfer, it will be considered invalid by the IRS and the insurance will be included in your taxable estate. There may also be a gift tax. Be sure to discuss this with your trust attorney.

16. Can I make any changes to the trust?

An insurance trust is irrevocable, so you can’t make changes after it has been set up. Read your trust document carefully, and be sure it’s exactly what you want before you sign.

Just don’t wait too long – you could become uninsurable. And remember, if you transfer existing policies to the trust, you must live three years after the transfer for it to be valid.

17.  Should I seek professional assistance?

Yes. If you think an irrevocable insurance trust would be of value to you and your family, talk with an insurance professional, estate planning attorney, corporate trustee, or CPA who has experience with these trusts.

Related articles

Who Can be Beneficiaries of the Trust? : Understanding Life Insurance Trusts

This is part 3 of the blog series discussing life insurance trusts and estate taxes.

10. Who can be beneficiaries of the trust?

You can name any person or organization you wish. Most people name their spouse, children and/or grandchildren.

11. How does an insurance trust give me control?

With an insurance trust, your trust owns the policy. The trustee you select must follow the instructions you put in your trust. And with your insurance trust as beneficiary of the policies, you will even have more control over the proceeds.

For example, your trust could allow the trustee to use the proceeds to make a loan to or purchase assets from your estate or revocable living trust, providing cash to pay expenses. You could provide your spouse with lifetime income and keep the proceeds out of both of your estates. You could keep the money in the trust for years and have the trustee make distributions as needed to trust beneficiaries, which can include your children and grandchildren. Proceeds that stay in the trust can be protected from courts, creditors (even ex-spouses) and irresponsible spending.

By contrast, if your spouse or children are beneficiaries of the policy, you will have no control over how the money is spent. If your spouse is beneficiary and you die first, all of the proceeds will be in your spouse’s taxable estate; that could create a tax problem. Also, your spouse (not you) will decide who will inherit any remaining money after he or she dies.

12. Are there other benefits to naming the trust as beneficiary of an insurance policy?

Yes. If you name an individual as beneficiary of a policy and that person is incapacitated when you die, the court will probably take control of the money. Most insurance companies will not knowingly pay to an incompetent person, and will usually insist on court supervision. But if your trust is beneficiary of the policy, the trustee can use the proceeds to provide for your loved one without court interference.

13. Where does the trustee get the money to purchase a new insurance policy?

From you, but in a special way. If you transfer money directly to the trustee, there could be a gift tax. But you can make annual tax-free gifts of up to $12,000 ($24,000 if your spouse joins you) to each beneficiary of your trust. (Amounts may increase periodically for inflation.) If you give more than this, the excess is applied to your federal gift/estate tax exemption.

Instead of making a gift directly to a beneficiary, you give it to the trustee. The trustee then notifies each one that a gift has been received on his/her behalf and, unless he/she elects to receive the gift now, the trustee will invest the funds – by paying the premium on the insurance policy. Each beneficiary must understand the consequences of taking the gift now; for example, it may reduce the trustee’s ability to pay premiums.

For additional questions on life insurance trusts and estate taxes, please contact our Trust Lawyer in Los Angeles today.

Understanding Life Insurance Trusts: Can I be my own trustee?

This is part 2 of the blog series discussing life insurance trusts and estate taxes

6. What if my estate is larger than this?

 I) If the trust buys the insurance, it will not be included in your estate. So the proceeds, which are not subject to probate or income taxes, will also be free from estate taxes.

II) Insurance proceeds are available right after you die. So your assets will not have to be liquidated to pay estate taxes.

III) Life insurance can be an inexpensive way to pay estate taxes and other expenses. So you can leave more to your loved ones.

7. How does an irrevocable insurance trust work?

An insurance trust has three components. The grantor is the person creating the trust – that’s you. The trustee you select manages the trust. And the trust beneficiaries you name will receive the trust assets after you die.

The trustee purchases an insurance policy, with you as the insured, and the trust as owner and (usually) beneficiary. When the insurance benefit is paid after your death, the trustee will collect the funds, make them available to pay estate taxes and/or other expenses (including debts, legal fees, probate costs, and income taxes that may be due on IRAs and other retirement benefits), and then distribute them to the trust beneficiaries as you have instructed.

8. Can I be my own trustee?

Not if you want the tax advantages we’ve explained. Some people name their spouse and/or adult children as trustee(s), but often they don’t have enough time or experience. Many people choose a corporate trustee (bank or trust company) because they are experienced with these trusts. A corporate trustee will make sure the trust is properly administered and the insurance premiums promptly paid.

9. Why not just name someone else as owner of my insurance policy?

If someone else, like your spouse or adult child, owns a policy on your life and dies first, the cash/termination value will be in his/her taxable estate. That doesn’t help much.

But, more importantly, if someone else owns the policy, you lose control. This person could change the beneficiary, take the cash value, or even cancel the policy, leaving you with no insurance. You may trust this person now, but you could have problems later on. The policy could even be garnished to help satisfy the other person’s creditors. An insurance trust is safer – it lets you reduce estate taxes and keep control.

For additional questions on life insurance trusts and estate taxes, please contact our Estate Planning Lawyer in Woodland Hills, Ca today.

Understanding Life Insurance Trusts: How to Reduce or Eliminate Your Estate Tax Cost

This blog series will go through questions that are often asked by our clients when discussing life insurance trusts and estate taxes.

1. What does a life insurance trust do?

An irrevocable life insurance trust lets you reduce or even eliminate estate taxes, so more of your estate can go to your loved ones. It also gives you more control over your insurance policies and the money that is paid from them.

2. What are estate taxes?

Estate taxes are different from, and in addition to, probate expenses and final income taxes (which must be paid on any income you receive in the year you die). Some states also have their own death/inheritance taxes.
Federal estate taxes are expensive – the rate is 46% in 2006, 45% in 2007 and 2008 – and they must be paid in cash, usually within nine months after you die. Since few estates have this kind of cash, assets often have to be liquidated. But estate taxes can be substantially reduced or even eliminated – if you plan ahead.

3. Who has to pay estate taxes?

Your estate will have to pay estate taxes if its net value when you die is more than the “exempt” amount set by Congress at that time. Here is the current schedule:

Year of Death………..Estate Tax “Exemption”

2006, 2007 & 2008………..$2 million

2009………..$3.5 million

2010………..N/A (repealed)

2011 and thereafter………..$1 million

4. What makes up my net estate?

To determine your current net estate, add your assets then subtract your debts. Many people are surprised that insurance policies in which they have any “incidents of ownership” are included in their taxable estates. This includes policies you can borrow against, assign or cancel, or for which you can revoke an assignment, or can name or change the beneficiary.
You can see how life insurance can increase the size of your estate–and the amount of estate taxes that must be paid.

5. How does an insurance trust reduce estate taxes?

The insurance trust owns your insurance policies for you. Since you don’t personally own the insurance or have any “incidents of ownership,” it will not be included in your estate — so your estate taxes are reduced.

Let’s say you are married, with a combined net estate of $5 million, $1 million of which is life insurance. With a tax planning provision in a revocable living trust or will, you can protect up to $4 million in 2006-2008 from estate taxes. But if you die in 2006, your estate would have to pay $460,000 in estate taxes on the additional $1 million ($450,000 in 2007 and 2008). With an insurance trust, the $1 million in insurance would not be in your estate. That would save your family at least $450,000 in estate taxes.

For additional questions on life insurance trusts and estate taxes, please contact our Estate Planning Attorney in Woodland Hills, Ca today.

6 Tips on How to Handle the Responsibility and Potential Liability of Being a Trustee (Part 2) by Rob Cohen

Here are the additional tips continued from “BEING A TRUSTEE IS A THANKLESS JOB: Six Tips on How to Handle the Responsibility and Potential Liability (Part 1)” that might help make your trustee-ship progress more smoothly.

4) Examine the inventory. It is not uncommon for people to set up trusts and then do nothing, assuming that since the documents have been signed the trust is effective. This is not accurate; not only must the trust document be executed, but then the assets must be transferred into the trust, (you must “fund the trust”). Failure to fund the trust is especially common with do-it-yourself websites and computer programs; people mistakenly believe that just having a trust is sufficient. Before a trustee can administer the trust, he or she needs to have assets to administer. When examining the assets, here are some action items to consider.

• If the decedent had a safe deposit box, take possession of it and its contents.
• Consult with banking institutions in the area to find all accounts of the deceased.
• Check for cash and other valuables that may be hidden around the home.
• Locate and inventory all real estate deeds, mortgages, leases, and tax information.
• Provide immediate management for rental properties.
• Locate all household and personal effects and other personal property in order to inventory and protect them.
• Collect all life insurance proceeds payable to the estate.
• Find and safeguard all business interests, valuables, personal property, and important papers.

Ultimately, do your best to make sure that the trust’s assets are actually in the trust. If you identify assets that were not transferred to the trust, ascertain whether they should have been.

5) Take emotion out of the equation.In many situations you can be asked to be a trustee for clients, parents, brothers, sisters, and other family members or friends. When the emotional ties are close, you cannot play favorites. As a trustee you have a huge responsibility and significant exposure. Your actions will be scrutinized and challenged by those beneficiaries who feel they were treated unfairly. Your best bet to avoid personal liability is to be unbiased when dealing with trust matters. If you are not sure about your actions and whether they reflect any bias, ask your attorney.

6) Obtain adequate liability and fidelity insurance. No one is immune to lawsuits, and that includes you in your role as a trustee. To protect yourself, obtain errors and omissions insurance, which protects against claims by beneficiaries that you failed to fulfill your fiduciary duty in the management and administration of the trust. Without the protection of errors and omissions insurance, your personal assets could be “exposed” if a disgruntled beneficiary sues you. It is better to have insurance to protect you and your assets.

Being a trustee is not always an appreciated job, but it certainly is a job with tremendous responsibility. Just remember to be mindful of your duties and ask for advice when in doubt. Trusts contain valuable assets, and as dysfunctional families do not get better when someone passes away, trustees easily can become embroiled in nasty litigation. You may not be able to avoid it, but at least you’ll be able to protect yourself.

For more information on trusts, wills, probate, and the role of trustees, contact Rob Cohen at (818) 501-5800 or emal him at rcohen@ahslawyers.com.

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6 Tips on How to Handle the Responsibility and Potential Liability of Being a Trustee (Part 1) by Rob Cohen

Trusts are popular estate planning tools to ensure that families and assets are taken care of when someone passes away. Whether it’s providing for children, endowing charities, or managing real estate, those who create trusts have specific wishes that they expect to be followed, and they expect the trustee to carry out their plans.

But, being a trustee can be a thankless job, not to mention one that can thrust a person with good intentions into the cross hairs of litigation. Courts are filling to over-capacity with cases against trustees, and the matters can get quite complex.

If you are asked to be a trustee, first understand that someone held you in very high esteem and had confidence that you could oversee his or her legacy and assets. Second, be sure you know what being a trustee entails. It can get very complex, very fast.

With this in mind, here are a few tips that might help make your trustee-ship progress more smoothly.

1) Read the trust. Seems pretty basic, but you might be surprised at the level of detail and complexity contained within a trust. The trustee is obligated to administer the trust strictly by its terms. Not all trusts are the same; if possible, read the document with an attorney familiar with trust administration.

2) Keep track of your time. Some trusts are specific as to how much the trustee is to be paid (e.g., a fixed fee or percentage of the value of the assets). But some trusts, especially those drafted several years ago, may permit the trustee to receive “reasonable” compensation. What is reasonable? Ask 10 people and you’ll get 10 different answers. To avoid possible confusion or challenges, track your hours spent acting as trustee. If there is a dispute as to the trustee’s compensation, at least you’ll be able to demonstrate the actual time spent on trust matters.

3) Provide annual accountings. Every year, be sure to provide the beneficiaries with clear written accountings, which explain the income and expenses of the trust. Why is this important? First, it is required by statute. Second, once the accounting is served on the beneficiaries, the statute of limitations begins to run on claims challenging the accounting. If you don’t serve the accounting, the statute of limitations to file a challenge doesn’t start and you can be on the hook for a long time.

To continue reading: BEING A TRUSTEE IS A THANKLESS JOB: Six Tips on How to Handle the Responsibility and Potential Liability (Part 2)

For more information speak with our Trust Attorney in Los Angeles today.

What if the Mobilehome Owner Dies Without a Will and No one Comes Forward on Behalf of the Deceased Homeowner?

If the homeowner dies without a will, then as the community owner, the situation is not any different than that described above. You might be presented with a “Small Estates Affidavit”. In the absence of that, a representative of the estate still needs to be appointed. The process is essentially the same as that described above in that a petition is filed with the court by the person who seeks appointment as the legal representative. And if that person is approved by the court, he or she will be issued “Letters of Administration” as discussed previously.

In the situation where you have actual knowledge that the resident has died, but no one has come forward on that person’s behalf, then complicated issues of the proper service of notices necessary under the MRL arise. The proper steps or action to take in such situation will depend on the particular factual circumstances involved. As a result, it is recommended that you specifically consult with your legal counsel about the proper course of conduct in this situation, so you as the owner, can protect yourself from potential liability.

The death of a resident can present many potential “traps” for the mobilehome community owner or manager and it is recommended that you consult with legal counsel to determine the proper steps to take so you can avoid unnecessary liability.

After all, particularly when it comes to legal expense, “an ounce of prevention is worth a pound of cure”.

This Mobilehome Blog Series was co-written by Los Angeles Attorney Doug Schreiber and San Diego Attorney Tamara Cross

To go back to the beginning of the blog series…
Death of a Resident in Your Mobilehome Community: What You Need to Know

For more information on mobilehome community law, please contact our Mobilehome Park Attorney in Los Angeles today.

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