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By wswendson, on May 29th, 2012
 Some of the most generous provisions of the tax code are those that permit beneficiaries of IRAs and other qualified retirement plans to defer income tax on the plans until time of withdrawal. This allows the IRA or qualified plan to grow significantly more than if it were subject to tax on gains each year.
Another equally generous provision of the tax code permits beneficiaries to withdraw only a minimum amount from IRAs or qualified plans each year. By taking only these “required minimum distributions” a beneficiary can stretch out distributions over the better part of his or her lifetime, resulting in further deferral of income tax on the amount remaining in the plan.
Unfortunately, most beneficiaries fail to take advantage of this latter provision and withdraw all of the IRA or qualified plan funds immediately, thereby losing the significant tax advantages of tax-deferred growth.
A recent Senate proposal would have required that beneficiaries withdraw the entire IRA or qualified plan within five year’s of the plan participant’s death. Fortunately the Senate proposal died upon arrival, but this is an excellent reminder that retirement plans are assets that need proper planning.
A common misperception is that one should not name a trust as beneficiary because it’s overly complicated and doesn’t permit a stretch out. While naming a trust does add a thin layer of complexity, a properly drafted trust not only permits the stretch out but it is the only approach that ensures maximum income tax deferral, if that is your objective.
Unfortunately there is no “one size fits all” answer here. Rather, this is best decided after consultation with professionals who understand these issues.
By wswendson, on May 22nd, 2012
 Many clients use beneficiary designations, and for good reason. Some significant assets, including life insurance policies, IRAs, retirement plans and even bank accounts, allow a beneficiary to be named. It’s free, it’s easy, and, when the owner dies, these assets are designed to be paid directly to the individual(s) named as beneficiary, outside of probate.
But that is not always what happens. For example:
* If your beneficiary is incapacitated when you die, the court will probably have to take control of the funds. That’s because most life insurance companies and other financial institutions will not knowingly pay to an incompetent person; they may insist on court supervision.
* If you name a minor as a beneficiary, you are probably setting up a court guardianship for the child. Life insurance companies and other financial institutions will not knowingly pay these funds directly to a minor, nor will they pay to another person for the child, not even to a parent. They do not want the potential liability and will usually require proof of a court-supervised guardianship.
* If you name “my estate” as beneficiary, the court will have to determine who that is. The funds will have to go through probate so they can be distributed along with your other assets.
* If your beneficiary dies before you (or you both die at the same time) and you have not named a secondary beneficiary, the proceeds will have to go through probate so they can be distributed with the rest of your assets.
Even if the funds are paid to the named beneficiary, things may not work out as the owner intended. For example:
* Some people just cannot handle large sums of money. They may spend irresponsibly, be influenced by a spouse or friend, make bad investment choices, or lose the money to an ex-spouse or creditor. If the beneficiary receives a tax-deferred account, he/she may decide to “cash out” and negate your careful planning for continued long-term tax-deferred growth.
* If you name someone as a beneficiary with the “understanding” that the funds will be used to care for another or will be “held” until a later time, you have no guarantee that will happen. The money may just be too tempting.
* If the person you name as beneficiary is receiving government benefits (for example, a child or parent who requires special care), you could be jeopardizing their ability to continue to receive these benefits.
* If your estate is larger, your choice of beneficiary could limit your tax planning options, causing serious tax consequences for your family.
Beneficiary designations can be quite useful, but they need to be considered as part of an overall estate plan. Naming a trust as beneficiary will generally prevent the problems described above, and by bringing all of the client’s assets together under one plan, you can be sure that each beneficiary will receive the amount the client wants them to have—something that can be difficult to accomplish with multiple designations.
It is important for the state planning attorney to review all beneficiary designations, correct any designations now, and make sure that you understand them. This will help to prevent significant future problems.
By wswendson, on May 18th, 2012
 In first marriages, couples generally have the same goals when it comes to their estate planning: take care of the surviving spouse for as long as he or she lives, then whatever is left will go to the children. They may own many of their assets jointly and, at the death of the first spouse, more than likely everything will go to the surviving spouse just as they had planned.
But second marriages (after divorce or death of the first spouse) are different. There may be his children, her children and sometimes their children. Each spouse probably has assets they brought into this marriage, and they will want those to go to their own children after they die. At the same time, they will probably want to make sure the surviving spouse will have enough to live on.
More than likely, estate planning methods relied upon in the first marriage will not work now. For example, let’s say the husband adds the new wife’s name on the title of his home and they own it together with rights of survivorship. If he dies first, his share will immediately transfer to his wife, who now has complete ownership of his home. She can do whatever she wants with it now, regardless of what his will or trust says. She can leave it to her own children and completely disinherit his.
There are similar problems with beneficiary designations. Many people name their spouse as beneficiary of their life insurance, IRAs and other tax-deferred plans to provide for their spouse, but this can be a problem with second marriages. The spouse-beneficiary can name anyone he/she wants as new beneficiaries or to inherit the proceeds, bypassing the owner’s children. Promises may be made now to include them, but promises can be broken after one spouse is gone.
Other Considerations:
* If each has considerable assets, it may be wise to keep the assets and estate planning separate. If there will be a pre- or post-nuptial agreement, it should be reviewed by an estate planning attorney before signing anything.
* If one spouse has considerably fewer assets than the other, it is possible to provide for this spouse until death or remarriage, then have the remaining assets distributed to the children of the “wealthier” spouse. This is often accomplished through a life estate or QTIP marital trust.
* If the new spouse is much younger, the children of the older spouse may be concerned that the new spouse is only after the money. While these feelings may subside as the marriage lengthens, if the younger spouse is close in age to the children, they may be wonder if they will ever receive an inheritance. Consider distributing some of their inheritance upon their parent’s death, then the rest at the surviving spouse’s death or remarriage.
* Naming a trust as beneficiary for life insurance policies and tax-deferred plans is often a good choice for second marriages. This will allow the owner-spouse to keep control over how and to whom the proceeds are distributed. The surviving spouse can receive lifetime income, yet the owner-spouse can keep control (through the trust) over the rest of the proceeds. Keeping the proceeds in a trust will also protect the children from irresponsible spending, creditors, predators, divorce, remarriage and even estate taxes, if done properly.
* Be sure to include planning for disability and long-term care. If one spouse becomes ill and Medicaid assistance is needed, the combined assets of the couple will be considered “available assets” to pay for the care of the ill spouse. Long-term care insurance may be needed to protect the assets of one or both spouses.
* It is a good idea for the couple to discuss their individual estate planning goals together. If they are similar, then the task may be somewhat easy. On the other hand, if they are considerably different, separate attorneys may be needed.
Your clients will want to do the right thing for everyone involved: themselves, their spouse, their children, and their spouse’s children. Take the time to consider this from everyone’s point of view.
By wswendson, on May 16th, 2012
With the number of online and do-it-yourself (DIY) legal providers continuing to grow, some of individuals may be wondering if they could do their estate planning themselves. The advertising is seductive: attorneys use similar forms, the cost is significantly less than hiring an attorney, and many of these websites and kits are created by attorneys. In addition, most people think their estates are not complicated, and many think they are just as smart as (or smarter than) professionals.
Most professionals know that DIY estate planning can be very dangerous. While completing the forms may seem easy and straightforward, a single mistake or omission can have far reaching complications that only come to light after the person has died. With that person not here to explain his or her intentions, the heirs could end up disappointed and confused, and could end up paying much more in legal help to try to sort things out after the fact than it would have cost in the first place.
Those contemplating the DIY route should consider the following:
- Legal Expertise: Experienced estate planning attorneys have the technical expertise to draft documents correctly. Yes, they may use pre-drafted forms to start from, but they know what to change and how to change it to make your plan work the way you want. They also understand the technical terms and legal requirements in your state. Laws vary greatly from state to state, and a DIY program or kit may not tell you everything you need to know to prevent your plan from being thrown out by the court.
- Counseling: Attorneys are called “counselors at law” for a reason. Most estate planning attorneys have counseled many families and they have seen the results of proper and improper planning. An experienced attorney can guide you with delicate decisions, including who should be the guardian of your minor children; how to provide for a child or elderly parent who has special needs without interrupting valuable government benefits; how to provide for your children fairly (which may not be equally); and how you can protect an inheritance from creditors and irresponsible spending.
- Explanation of Intentions: If there is any confusion as to what your intentions were after you are gone, the attorney who counseled you will be able to explain them. This unbiased interpretation from someone who does not stand to benefit from your plan can help to avoid costly litigation by your beneficiaries and even maintain the validity of your documents.
- Coordination of Assets: A will only controls assets that are titled in your name. You probably have other assets that are controlled by a contract, joint ownership and/or beneficiary designations; these include IRAs, 401(k)s, joint bank accounts, real estate and life insurance. A will does not control these assets. An experience estate planning attorney will know how to coordinate these so that your assets are distributed the way you want to those you want to have them.
- Tax Planning: The federal estate tax exemption has been a moving target in recent years. The current $5 million exemption is set to expire at the end of 2012 and, if Congress does nothing, it will reduce to $1 million in 2013. Also, many states have their own death or inheritance tax, often at much lower exemptions than the federal tax. Careful professional planning is a must in order to avoid paying too much federal and/or state tax.
- Same Sex and Other Relationships: Because laws are frequently changing and vary greatly from state to state, it is vital to have updated advice from a competent professional. Without proper planning, many rights may be limited for unmarried cohabitants. Providing for your pets may also be very important to you.
- Complexity and Cost: Most people think their estate planning will be simple. But the reality is, most of us discover we do need some personalized planning…and you may not know that without the guidance and counseling of an experienced attorney. It is far better to spend a little more now and make sure your plan is created correctly than to try to save a few dollars and have things turn out badly later. You won’t be around then to straighten things out. Don’t you think you owe it to those you love to do this the right way?
Here are some things all of us can do to help keep costs down:
- Become educated consumers. The more we learn and understand about estate planning, the less time an attorney will need to spend educating us as to the process.
- Prepare a list of assets and liabilities; gather relevant documents (deeds, titles, beneficiary designations, etc.); consider beneficiaries and any special needs they may have.
- Shop around a bit. Ask friends and acquaintances for referrals. If costs are a concern, let the attorney know up front that you are concerned about costs; he/she may be willing to work with you to keep them as low as possible.
- Consider what you think you want, but be open to the attorney’s suggestions.
By wswendson, on May 4th, 2012
As of April 17, 2012, the status of piers has become easier to understand. This is a big deal in this area with all of its lakes. For a number of years, lake owners have been struggling to comply with a pier law that set out size and configuration requirements. While there was a grandfathering provision, . . . → Read More: New Pier Law Takes the Worry out of Owning Piers, Jetskis and Wave Runners.
By wswendson, on April 26th, 2012
You may be interested in the April 25th article in Forbes entitled “7 Major Errors in Estate Planning.” This is a no-nonsense list of mistakes which we see and discuss with clients daily:
1. Not having a plan.
2. Using online documents or do-it-yourself documents rather than a professional.
3. Failing to review beneficiary designations and/or titling of property.
4. . . . → Read More: 7 Major Errors in Estate Planning
By wswendson, on March 26th, 2012
There was a great article on this topic in the Milwaukee Journal on Sunday, March 25, 2012. This topic is timely in Wisconsin with the adoption of the concealed weapon and castle laws, and the recent incident of the killing of a young adult by a homeowner in Slinger.
Homeowner’s liability insurance covers accidents. Shooting someone is . . . → Read More: Check Your Insurance if You Own a Gun
By wswendson, on December 16th, 2011
As of December 9, 2011, parents can name agents in a power of attorney who will have custody of their children if something happens to them. Good news. It addresses a long-standing gap in the tools available to help parents plan for their children.
What are we talking about? Say you and your spouse go out for . . . → Read More: Great Estate Planning News For Parents With Young Children
By wswendson, on December 15th, 2011
Anyone who has recently applied for a mortgage knows that lenders are already looking much more closely at your financial affairs. But soon, they’ll be able to easily delve into the deepest recesses of your financial life, accessing information that never before appeared on your credit report.
A company called CoreLogic introduced a new type of credit . . . → Read More: New Credit Score – There’s no hiding now.
By wswendson, on December 13th, 2011
Effective January 1, 2012, the standard mileage rates for the use of a car (including vans, pickups, and panel trucks) will be:
55.5 cents per mile for business miles driven (same rate for second half of 2011);
23 cents per mile for medical or moving purposes (currently, 23.5 cents per mile); and
14 cents per mile driven in service to . . . → Read More: Standard Mileage Rates Increasing in 2012
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