New York Trusts & Estates

Play by the Rules When Making IRA Contributions in Yorktown Heights, New York

 

The rules for IRAs have always been complicated, and penalties can be levied when mistakes are made.

Adding assets to an IRA is only simple when they are being automatically deducted from your paycheck! To contribute assets or transfer funds into your IRA, pay careful attention to the rules and let an experienced estate planning attorney help you before you make a costly mistake. For instance, what if you wanted to move a stock account into your IRA?

Unfortunately, it’s not as easy as transferring stocks from one account to an IRA. The rules stipulate that IRA contributions must be made in cash—that means you can deposit a check, electronically transfer cash between accounts at different financial institutions or authorize an internal cash transfer between accounts at the same bank.

Selling some stock in a non-retirement account is an option to free up enough cash to make an IRA contribution, but NJ 101.5’s recent article, “Moving your money to an IRA,” explains that first you should look into whether a contribution to a traditional IRA or a Roth IRA is a better option.

Each type of IRA must be in a separate account. Whether you need to open a new IRA depends on your desired IRA contribution type and what kind of IRA you already own. Also, it’s important to note that contributions into a SEP-IRA or Simple IRA have a different set of rules.

With a traditional or Roth IRA, you can make an annual contribution up to $5,500 or 100% of earned income—whichever is less. In addition, if you’re at least age 50 and have more earned income, you can also contribute an extra $1,000, which is called the “catch-up” contribution.

You can make an IRA contribution at any time during the year, but you have up until April 15^th of the following year to make your contribution. There aren’t any extensions, even if the IRS grants you an extension to file your income taxes.

With a traditional IRA, the contributions are deductible, but only if you or your spouse aren’t a participant in a qualified company retirement plan—like a 401(k) or profit-sharing. If you are a participant, your ability to deduct a traditional IRA contribution is phased out at $61,000 adjusted gross income (AGI) for singles and $98,000 for a married couple. Your spouse’s ability to deduct a contribution starts to phase out at $183,000 if only you are a participant in the qualified plan.

You can’t contribute to a traditional IRA if you are over 70½, despite having had earned income.

IRA distributions are usually taxable. They are also subject to a 10% early withdrawal penalty prior to age 59½, and minimum withdrawals are required after age 70½. For a Roth IRA, contributions are never deductible, but distributions are typically tax-free.

Whether or not you can contribute to a Roth IRA plan depends in part on your age and if you are participating in a qualified plan, but overall your ability to contribute to a Roth IRA is phased out at certain levels: $117,000 AGI for singles and $184,000 for marrieds. One of the pluses of a Roth IRA is there are no minimum distributions; however, the earnings portion of distributions may be taxable and/or subject to a penalty if the Roth wasn’t opened for five years, but this depends on your age. Keep in mind that there are different rules for people who fall into one of three categories: under age 59½, between the ages of 59½ and 70½, and over 70½. Talk with an estate planning attorney who can help guide you through the complexities of IRAs.

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The Key Estate Planning Documents, aka the “Big Three” in New City, New York

 

These key documents are at the heart of any estate plan. Understanding what they can do to protect you and those you love will make it easy to see how important they are.

Estate planning is so important, and it’s not as complicated as people think. According to a post on NJ 101.5, titled “Here are the important estate planning documents you should have,” all estate plans should include these three documents: a will, a general durable power of attorney and a health care proxy. Here’s what each document is for, and why they matter:

A will lets you give away your assets at your death in the way you want and in a way that’s appropriate for your beneficiaries. In addition, it allows you to name an executor to handle the administration of your estate. If you don’t name one in your will, an administrator will be appointed to settle your affairs. The process goes a lot more easily when you name an executor in your will.

A general durable power of attorney is a document in which you designate a trusted individual as your agent to act on your behalf on financial and property issues in the event you’re unable to do so. If the power of attorney is durable, its effectiveness continues after your incapacity. This will allow someone to act on your behalf if you become incapacitated in the future. Giving this power to an agent—along with the designation of a health care agent in a health care proxy—may eliminate an expensive guardianship proceeding if you become disabled or incapacitated down the road.

A health care proxy lets you designate an individual to act on your behalf for medical decisions if you are unable to make those yourself. A health care proxy is usually coupled with a living will. A living will stipulates your wishes on your continuing care under certain circumstances.

You should review all of your beneficiary designations to be certain they’re current and reflect your wishes on the disposition of each asset. An asset with a beneficiary designation generally deems it a non-probate asset, so it won’t be distributed under your will. Changes to your will do not change the distribution of that property. Retirement accounts and life insurance policies are the most common assets that pass by beneficiary designation, as well as POD (payable on death) and TOD (transfer on death) accounts.

The “Big Three” are the starting point. In some instances, the creation of a revocable living trust that holds property during your lifetime may have a role in your estate plan. Another type of trust is an irrevocable trust. And an irrevocable life insurance trust (ILIT) is used to eliminate the value of the insurance policy proceeds, also known as death benefits, from your taxable estate when you pass.

Every family’s estate planning needs are different, but an experienced estate planning attorney will be able to explain what you need and create the necessary documents.

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Five Top Blunders Americans Make with Estate Plans in Yorktown Heights, New York

 

It is said that the biggest mistake of all is to do nothing at all, and that is especially true when it comes to estate planning. A huge percentage of Americans have chosen to do nothing, perhaps because they do not understand how easy it is to fix this error.

For most Americans, preparing an estate is not that complicated. The process starts with a meeting with an estate planning attorney who will determine what the family needs and prepare the documents. According to a recent post on CNBC.com, “Don't drop the ball when planning your estate,” people who have cared for their families for decades often forget this important step.

1. No will. A 2016 survey found that 64% of American adults don't have a will, and about half of these people either said they didn't need one or just haven't gotten around to it. Depending on the state in which you live and your personal situation, not having a will can result in assets going to people other than those you intend. A will is the document that states your wishes.
2. No updated will. The good news is that you have a will; the bad news is that you haven’t reviewed it in a decade. You’re not alone. Many folks think their wills are “set-it-and-forget-it” documents that never need to be changed. However, our lives change. We marry, divorce, adopt children, have grandkids…the list is endless. You should review your will every two years.
3. Unrealistic ideas about your heirs. When you draft your will, you should consider if your heirs are financially and emotionally able to handle the responsibility of money. They may not have the appropriate maturity and financial knowledge or may even have an addiction issue—any of which may be a serious problem when giving them a large sum of money. You should talk to an attorney about adding provisions in your will to protect them from their own issues.
4. No trust documents. Wills help with the division of assets upon death, but trusts will live for a set period of time to regulate the distribution of assets. A trust can restrict the timing of asset distribution and add conditions for heirs to receive bequests—like the supervision of a pre-appointed trustee until a minor heir turns 18.
5. Not naming the right executor or trustee. Many people will opt for a relative or old friend in their wills as their trustee. However, they may be your contemporaries and may not outlive you. They also may not have the time or inclination to take on the responsibilities of an executorship. Plus, appointing a relative or family friend can increase the odds of friction between heirs. Instead, you might think about naming a professional executor or trustee.

One last note: estate planning attorneys are now hearing from families where a loved one has used an online “do-it-yourself” will. A DIY will may create an unintended legacy of stress and expenses for your loved ones. Speak with an experienced estate planning attorney so that your family is properly protected.

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Proposed Regulation Changes from the IRS and the Treasury for Estate and Gift Tax Rules in New City, New York

 

Changes are coming to a commonly used estate planning plan tool.

Estate and gift tax rules are about to have a significant change that will impact estate planning for individuals with a total net estate worth more than $5,400,000 or married couples with more than $10,900,000. This concerns the use of valuation discounts created by transferring interests in a family business or other assets.

The Santa Barbara Independent says in “New IRS Regulations” that people in the past usually transferred certain assets into partnerships or limited liability companies (LLC). After the transfer, rather than owning the assets in their own name, the assets were now owned through an interest in a partnership or in a limited liability company (LLC). When the transfers of those entity interests (assets) were made to family members, it meant a reduction of the value of the transferred portion by as much as 25% to 45%. This estate planning strategy—known as “valuation discount planning”—usually decreased wealth transfer taxes at the time of death or when “gifting” assets to heirs ahead of death.

For instance, placing $10 million worth of assets inside a closely-held LLC or partnership might decrease the value of those assets in the estate by $2.5 million to $4.5 million. With the current 40% estate tax rate, this could reduce the estate (or gift) tax by $1 million to $1.8 million.

Just last month, however, the U.S. Treasury Department announced proposed regulations for Internal Revenue Code Section 2704 that, when finalized, would eliminate this valuation discount planning approach. The Treasury Department won’t finalize the regulations until after its December 1, 2016 hearing at the earliest, so you can still plan and take action if this kind of strategy is important for your family.

There is still time to make these transfers, but the window of opportunity is closing fast. Because of the level of complexity in large estates, this is usually not something that can be done overnight and requires careful planning as it may impact other parts of your estate. Meet with an experienced estate planning attorney to make sure that your estate is protected and that any changes are made properly before the proposed regulations become law.

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Protecting Your Retirement Plan From a Gray Divorce in Yorktown Heights, New York

 

There is no good time in life for a divorce, but late life divorces have a larger impact, especially on those who were otherwise prepared for retirement.

With divorce rates from adults aged 50+ doubling from 1990 to 2010, the face of retirement is changing. Out of every four divorces today, one or more participants is over age 50. The data through 2014 shows that the rates have remained the same in subsequent years, according to as study from Bowling Green State University. This may be seen as a result of a generation that is willing to take a big risk.

ABC News’ recent article, “Keeping Some Green in Gray Divorce,” says the reasons for the rise include longer lifespans, more women in the workforce, changing notions about marriage and higher rates of remarriage, which boost your odds of splitting.

Here are some things to consider when divorce suddenly becomes part of your retirement plan. The issues involved in a "gray divorce" are much like those of a divorce at any age, but things like limited working years ahead, complicated assets and adult children may make the process much tougher.

Be sure you have a team of professionals to guide you through the process. This should include an attorney, mediator, financial planner, accountant and a therapist. In a gray divorce, a financial expert is important because you have a lifetime of assets built up. Retirement finances are critical and complex and you should seek the advice of professionals.

A big issue with an older couple is who gets to keep the family house. You should be receptive to alternatives that will leave you in a better position. Selling a home or choosing other assets in the settlement may give you the income you’ll need in the future. Plus, downsizing can significantly help manage your expenses.

The biggest challenge for individuals going through a gray divorce is making certain that there's enough money to provide a comfortable retirement. Consider and reexamine your options based on the settlement. You might need to delay retirement, return to work, downsize or make other adjustments.

One factor often overlooked in retirement planning: healthcare costs. For couples who had been married for ten years or more, remember that you may qualify to receive spousal Social Security benefits. This may help soften the financial blow of a gray divorce.

Be sure to update your will, estate documents, beneficiary designations and other key documents after a divorce. If you want to take care of your ex’s retirement, that is generous and kind, but make sure this happens deliberately and is not the result of an oversight.

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Know When to Hold and When to Walk Away in Yorktown Heights, NY

 

There are times when it makes more sense to turn down an inheritance than to welcome it.

It’s the thing movies are made of: a distant relative who you met only once has made you the heir to his or her entire estate. You’ve got money and other assets coming your way—minus the emotional turmoil of losing a loved one. Still, you need to take a closer look, warns The Street in its article, “Why You Might Want to Refuse That Inheritance.” You may realize that sometimes it’s best that this scenario remains a fantasy.

There are several reasons for an heir to disclaim or say “no” to an inheritance. In many cases, it’s to redirect the money within the family to a more tax-efficient recipient. For instance, a gift might bump your own estate over the federal estate tax limit of $5.45 million for an individual or $10.9 million for a couple. When you reach this threshold, estates are hit with a 40% tax. If a named beneficiary would expect to incur estate taxes on his or her death, a smart move would be to save on taxes and disclaim an inheritance to a child with a smaller estate.

Another use of disclaiming is to redirect assets to a member of the family who needs the money more than the original beneficiary. Children who are financially secure may want to disclaim assets they were to receive in a parent’s will to allow those assets to help support a surviving parent. When a person passes away without a will in many states, half the estate goes to the surviving spouse and half to children—but that may leave the surviving spouse short on funds. As a result, when it is time to settle the estate, a child can use a disclaimer to return a portion to the surviving parent.

In addition to disclaiming by wealthy families to reduce estate taxes, less-affluent families may also see its application when a beneficiary has creditors who might try to claim inherited assets. It may be smart to direct those assets elsewhere.

This can also help elderly family members who need nursing home care that Medicare doesn’t cover. Medicaid pays for long-term care—but only when recipients have exhausted all of their own assets. One idea is to spend down a nursing home resident’s assets so he or she can qualify for Medicaid. In addition, claiming an inheritance may delay the timing of when Medicare starts paying for long-term care. Disclaiming could protect an inheritance from being consumed by nursing costs and keep it in the family. However, disclaiming may not always be possible—if an heir is already on Medicaid, the state-run health program might contest an attempt to disclaim an inheritance that—if claimed—would make the individual ineligible for Medicaid.

A few final details: you have nine months after the person’s date of death to disclaim an inheritance, but it is best not to delay. Why? IRA custodians may cash out IRA accounts on their own initiative and mail checks to beneficiaries. If you cash one of those checks, it could make it difficult for you to disclaim. To disclaim, you may not benefit from the assets. Also, you must notify the estate executor about your intent to disclaim in writing and using registered or certified mail. Disclaiming an inheritance is one of those things that cannot be reversed, so think carefully and be sure this is really what you want to do.

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Fearing Loss of Control is One Reason People try to Hide Alzheimer’s in New City, NY

 

Planning for life with Alzheimer’s includes selecting trusted family members or friends who can assist with legal and financial matters.

It was at least three years after his diagnosis that comedic actor Gene Wilder revealed he was suffering from Alzheimer’s disease. This is not unusual, according to experts discussing his situation in the Investment News article, “Hiding Alzheimer's, like Gene Wilder did, is natural, so prepare for it with all clients.” Wilder, star of Blazing Saddles, Willy Wonka and the Chocolate Factory and many other classic comedies, died at age 83 from complications of Alzheimer's disease. He wanted to leave his audiences laughing, rather than being sad that he was suffering from this dreaded disease.

Most Alzheimer's patients will hide their symptoms as long as they can because they fear losing control of their lives if family or friends are under the impression they can’t take care of things on their own.

The first thing to recognize is that cognitive impairment is a significant risk. Financial advisers and elder law attorneys should take steps to protect these clients' finances from the impact of debilitating conditions like Alzheimer's. This is best accomplished before they notice any changes in the individual’s behavior. With dementia and Alzheimer's so common in the elderly, criminals frequently target older individuals because they can more easily be swayed into releasing money or disclosing personal information.

The first thing elder law attorneys will do is have their clients execute a legal document that lists the family members or friends whom the attorney can contact to discuss private information if he or she believes the client is starting to have cognitive problems. Clients may need some time to consider this difficult issue. However, if they refuse to provide this information, financial planners will often require them to sign a different document that releases the adviser from liability if the client is harmed because of his or her cognitive decline.

Get the complete legal picture from an experienced elder law attorney.

Advisers may also have a checklist to complete each year about their clients to monitor changes and document them over time. When they see “red flags,” like a client with memory loss or difficulty understanding the consequences of decisions, advisers may ask that a trusted contact start attending planning meetings.

There is no way to make a diagnosis of Alzheimer’s pleasant. But once this has occurred, the family needs to address the medical, legal and financial matters that will be faced in the future. An elder law attorney with experience in this area will be able to help.

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Social Security’s Less Known Customer Services in Yorktown Heights, NY

 

Certain organizations are known for providing amazing customer service. Social Security is not usually one of them. However, there are some services that Social Security does offer that are not well known and that could make life easier for many.

Good news is hard to find when it comes to dealing with large government bureaucracies, including Social Security. That makes this information provided by AARP’s article, “Discover Little-Known Social Security Benefits,” especially welcome.

Some years ago, Social Security officials saw that the long waiting time for decisions on disability applications was resulting in severe hardship for the seriously ill. As a consequence, the agency established the Compassionate Allowances List.

This program’s goal is to swiftly grant disability status to those who suffer from any of the 225 serious medical conditions on the list. They include rare diseases, cancers, traumatic brain injury, stroke, early onset Alzheimer's disease and related dementias, schizophrenia, cardiovascular disease, multiple organ transplants and autoimmune diseases.

The Social Security Administration says that folks who can show they suffer from any of these afflictions will receive approval in weeks rather than months or years.

If you see that a loved one isn’t good at managing money, Social Security can help with its Representative Payee Program. It matches people who require assistance managing their finances with people who are willing and able to help them.

If you're concerned that a loved one has become incapable of managing or directing the management of his or her benefits, speak with an elder law attorney who focuses on Social Security to discuss your concerns.

Social Security will typically look to family members or friends to serve as representative payees. If no one is available, they work with social service agencies to locate people to serve as representative payees.

Social Security also provides free interpretation services for people who do not speak English. The agency can translate a surprisingly large number of languages—from Arabic and Armenian to Tagalog and Vietnamese. They also provide interpretation for more common languages like Spanish, French and Italian. These services are offered by phone and at local Social Security offices.

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Collecting Death Benefits from Life Insurance Policies in New City, NY

 

If you are the beneficiary of someone’s life insurance policy, you should know that there are options as to how the policy funds, known as death benefits, can be distributed.

In most situations, the beneficiary of a life insurance policy does not have to pay income taxes on death benefits, according to a recent article in Forbes, “Are Life Insurance Proceeds Subject to Taxes?”

But depending on your situation, you might want to consider different options for that money that may be more productive in the long term. The insurance company can cut a check, but you can also have the insurer hold on to all or some of the funds and distribute them at a later date or in periodic distributions. If the money is held by the insurer, it will continue to earn interest—and that interest is taxable.

Another option is to transfer those funds to a trust that could control the proceeds of the policy based on the stipulations you set when creating it. However, remember that trust planning can get complicated if you establish “incidents of ownership” in the policy, in other words, if you are controlling the policy in some way. For example, such “incidents” include borrowing against it, using it as collateral or assigning it in a contract. If that happens, the proceeds of the policy might be considered a part of your estate and be subject to estate taxes when you die. Those estate taxes may be delayed if your spouse is the beneficiary, but taxes may be due when he or she passes away.

Also, remember that while you can state in your will that the proceeds of a life insurance policy should go to one of your beneficiaries, only the named beneficiary of the policy gets the funds. When your intentions change, you must contact the life insurance company to update your beneficiary designation. You should also update any 401(k)s or IRAs.

To avoid any expensive mistakes, including creating taxable events, speak with an estate planning attorney to make sure that all of your life insurance policies are aligned with the overall goals of your estate plan. These can be complex financial instruments, and the help of an experienced professional will ensure that you reach your ultimate goal: protecting your loved ones.

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New Regulations Proposed by IRS and Treasury May Impact Estate Planning Technique in Yorktown Heights, NY

 

If these proposed regulations become law, business owners may lose the ability to use valuation discounts of ownership shares as an estate planning technique.

Have you arrived at that time when retirement is no longer off in the future but just around the corner? If that is the case, and if you are a business owner thinking about succession planning and estate planning, you need to know about a significant change being proposed by the IRS and the Treasury. Many business owners transfer their interest in the business to their children, but this option is likely going to end soon.

A recent cincinnati.com post, “Planning can minimize bite on business from estate tax,” explains that the IRS recently released proposed regulations that would close the tax loopholes some taxpayers use to minimize gift and estate taxes when transferring interests in a closely held family business to relatives.

If a person wants to transfer a minority interest to his or her children, there are the tax advantages of “discounts” that help preserve the owner’s lifetime exemption. Discounts usually range between 25 percent and 40 percent and fall into two categories: minority discounts and lack of marketability discounts. The reason to apply discounts in situations where a minority interest is transferred is that an ownership position with less than 50% of the voting rights lacks the ability to control. There are quite a few things a majority owner can control that a minority member can’t—like setting management compensation, creating policies, deciding the amount and timing of distributions, and liquidating, dissolving or selling the company.

Using discounts in tax and estate planning can create a big benefit and allow for greater transfer of wealth to family members. So, if you wanted to transfer a minority interest in your business to your children with a value of $1 million, a discount of 30% would mean that you would only have to reduce your lifetime exemption by $700,000 instead of $1 million.

If you think your estate will be under the $5.45 million or $10.9 million exemption amount, you should weigh the desire to transfer the business with the potential to step-up the basis upon your death. Based on the business structure, your current basis may be significantly less than the business’ current value. Any gifts made of the business interest would have carryover basis for the recipient. If the owner died owning the business, the recipient would get a basis that’s generally equal to the fair market value as of the date of death—a difference that can be valuable if you have a low basis and if you don’t otherwise anticipate owing estate tax.

The proposed regulations are now in a period of public comment, and a public hearing is scheduled for December 1. If they become law, they won’t take effect until at least 30 days after being finalized—so there is a very very small window of time left to use this estate planning technique. If this is something that applies to your estate plan and succession plan, meet with an estate planning attorney as soon as possible.

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