Why You Might Actually Owe Taxes in 2018

Was the 2018 tax year what you expected?

Like many taxpayers, if you’ve already filed your federal income taxes for 2018, you may be surprised to discover you’re not getting a refund this time.  If so, this was almost certainly due to the sweeping tax overhaul made by the 2017 Tax Cut and Jobs Act (TCJA).

Since personal tax rates were lowered by the TCJA, it’s natural to assume you would owe less taxes, not more. But as you may have discovered, this isn’t always the case.

Seeing that the TCJA was promised to offer most people a tax break, understanding why you might owe more taxes in 2018 (rather than less) can be confusing.  It is more complex than a blog post can really dive into, but the following questions and answers are designed to shed some light on this situation, so you can start revising your tax strategies for the coming years.

Q: What changed?

A: In addition to lowering personal income tax rates, the TCJA doubled the standard exemption to $12,000, added limits to deductions for state and local taxes (SALT), eliminated personal exemptions, set limits on deductions for home-mortgage interest, among many other changes.

Given all of the changes, you may find that you’re no longer withholding the proper amount of taxes from your paycheck and/or quarterly installments to the IRS. When filing, this can result in either overpaying your taxes (and getting a refund) or underpaying (and owing money).

Q: What does this mean for me?

A: In light of these new changes, you should carefully review your withholding and make adjustments if necessary. To help with this, the IRS published new withholding tables and updated its withholding calculator into which you can input your current tax data to see if you need to make any changes.

Q: How do I change my withholding?

A: If you work as an employee, you change your withholding by making adjustments to your W-4. If you work for yourself, you either increase or decrease your estimated quarterly payments.

A W-4 determines how much income tax is withheld from your pay by your employer. You fill out a W-4 when you start a new job, but you can change it at any time. Specifically, the form asks you for the number of allowances you want to claim based on personal factors, such as being married and/or having children and filing as head of household.

The more allowances you claim, the less federal income tax your employer will withhold, which translates to more money in your paycheck. The fewer allowances you claim, the more federal income tax your employer will withhold, lowering your take-home pay.

It’s important that you withhold the proper amount from your paycheck or make quarterly payments. Don’t withhold enough, and you’ll owe the IRS at the end of the year. Withhold too much, and you might get a big refund, but you’ve basically given the government an interest-free loan for that year.  Although for some folks, having the IRS save funds for them is the best alternative!

Q: What if I employ caregivers?

A: Many of our clients are at the point at which some amount of in-home or personal care is necessary.  Sometimes, that comes in the form of caregivers hired via an agency, or directly by the family.  Often, friends of the family or local neighbors, or church members offer their time to assist.  What you pay the caregiver might be tax deductible in some cases.

But, please note this very important fact.  If you pay that person for services, then you are also required by IRS rules to withhold taxes and submit that to the IRS on a quarterly basis.  The caregivers are actually “family employees” and should be treated correctly, from a wage and tax standpoint.  If you use an agency, they will take care of taxes.  If you hire them yourself, you will need to make the filings.

If you employ caregivers who are “independent contractors” then you must submit A “1099” form that specifies what you paid them.  Remember that the caregivers should be employees, not contractors.  But, if they ask you to pay on a 1099 basis, you still need to report and send them the right form.  They can use that form to self-report taxes.

Some people do not want the burden of wages and tax reporting.  Payment in cash “under the table” is common but presents a number of issues.  First of all, it is illegal according to the IRS and the NC Department of Revenue.  Secondly,  the employee caregiver will not receive workers compensation or insurance, and if s/he has an accident at your home, you may be liable personally for a large settlement.  Third, such cash payments cannot be hidden from Medicaid and if you need Medicaid in the future those cash payments may actually create a sanction penalty.  So, our advice is that you always pay caregivers W2 wages.

Maximize your tax savings

Adjusting your withholding is just one of many strategies you can use to save on your taxes.  As you might guess, the TCJA also changed tax laws that have the potential to affect your estate planning strategies as well. In light of this, when the 2018 tax season wraps up, we’ll be pairing up with one of our trusted local CPAs to bring you support and guidance that you can use to maximize your tax savings in 2019 and beyond. Contact us as your Personal Family Lawyer® to learn more.

What is an IRA Trust? And, do you need one?

Could an IRA Trust Benefit Your Family?
Four reasons you should consider the IRA Trust.

Unlike most of your assets, individual retirement accounts (IRAs) do not pass to your family through a will. Instead, upon your death, your IRA will pass directly to the people you named via your IRA beneficiary designation form. Unless you take extra steps, the named beneficiary can do whatever he or she wants with the account’s funds once you’re gone. The beneficiary could cash out some or all of the IRA and spend it, invest the funds in other securities, or leave the money in the IRA for as long as possible.

For a number of reasons that we’ll address more below, you might not want your heirs to receive your retirement savings all at once. One way to prevent this is to designate your IRA into a trust.

But you can’t just use any trust to hold an IRA; you’ll need to set up a special type of revocable trust specifically designed to act as the beneficiary of your IRA upon your death.

Such a trust is referred to by different names—IRA Living Trust, IRA Inheritor’s Trust, IRA Stretch Trust—but for this article, we’re simply going to call it an IRA Trust.

IRA Trust benefits

IRA Trusts offer a number of valuable benefits to both you and your beneficiaries. If you have significant assets invested through one or more IRA accounts, you might want to consider the following advantages of adding an IRA Trust to your estate plan.

1. Protection from creditors, lawsuits, & divorce

While IRAs are typically protected from creditors while you’re alive, once you die and the funds pass to your beneficiaries, the IRA can lose its protected status when your beneficiary distributes the funds to him or herself.

One way to counteract this is to leave your retirement assets through an IRA Trust, in which case your IRA funds will be shielded from creditors as long as they remain in the trust.

IRA Trusts are also useful if you’re in a second (or more) marriage and want your IRA assets to be used for the benefit of your surviving spouse while he or she is living, and then to distributed or be held for the benefit of your children from a prior marriage after your surviving spouse passes. This would ensure that your surviving spouse cannot divert retirement assets to a new spouse, to his or her children from a prior marriage, or lose them to a creditor before the funds ultimately get to your children.

2. Protection from the beneficiary’s own bad decisions

In addition to outside creditors, an IRA Trust can also help protect the beneficiary from his or her own poor money-management skills and spending habits. If the IRA passes to your beneficiary directly, there’s nothing stopping him or her from quickly blowing through the wealth you’ve worked your whole life to build.

When you create an IRA Trust, however, you can add restrictions to the trust’s terms that control when the money is distributed as well as how it is to be spent. For example, you might stipulate that the beneficiary can only access the funds at a certain age or upon the completion of college. Or you might stipulate that the assets can only be used for healthcare needs or a home purchase. With our support, you can get as creative as you want with the trust’s terms.

3. Tax savings

One of the primary benefits of traditional IRAs is that they offer a period of tax-deferred growth, or tax-free growth in the case of a Roth IRA. Yet if the IRA passes directly to your beneficiary at your death and is immediately cashed out, the beneficiary can lose out on potentially massive tax savings. Not only will the beneficiary have to pay taxes on the total amount of the IRA in the year it was withdrawn, but he or she will also lose the ability to “stretch out” the required minimum distributions (RMDs) over their life expectancy.

A properly drafted IRA Trust can ensure the IRA funds are not all withdrawn at once and the RMDs are stretched out over the beneficiary’s lifetime. Depending on the age of the beneficiary, this gives the IRA years—potentially even decades—of additional tax-deferred or tax-free growth.

4. Minors

If you want to name a minor child as the beneficiary of your IRA, they can’t inherit the account until they reach the age of majority. So without a trust, you’ll have to name a guardian or conservator to manage the IRA until the child comes of age. When the beneficiary reaches the age of majority, he or she can withdraw all of the IRA funds at once—and as we’ve seen, this can have serious disadvantages.

With an IRA Trust, however, you name a trustee to handle the IRA management until the child comes of age. At that point, the IRA Trust’s terms can stipulate how and when the funds are distributed. Or the terms can even ensure the funds are held for the lifetime of your beneficiary, to be invested by your beneficiary through the trust.

Find out if an IRA Trust is right for you

While IRA Trusts can have major benefits, they’re not the best option for everyone. Laws regarding IRA Trusts vary widely from state to state, so in some places, they’ll be more effective than others. Plus, the value of IRA Trusts also varies greatly depending on your specific family situation, so not everyone will want to put these trusts in place.

If you have more than $150,000 in retirement accounts, consult with us as your Personal Family Lawyer® to find out if an IRA Trust is the most suitable option for passing on your retirement savings to benefit your family.

Three sins of Retirement Planning


3 Deadly Sins of Retirement Planning

Retirement planning is one of life’s most important financial goals.

Indeed, funding retirement is one of the primary reasons many people put money aside in the first place. Yet many of us put more effort into planning for our vacations than we do to prepare for a time when we may no longer earn an income.

Whether you’ve put off planning for retirement altogether or failed to create a truly comprehensive plan, you’re putting yourself at risk for a future of poverty, penny pinching, and dependence. The stakes could hardly be higher.

When preparing for your final years, it’s not enough to simply hope for the best. You should treat retirement planning as if your life depended on it—because it does. To this end, even well thought-out plans can contain fatal flaws you might not be aware of until it’s too late.

Have you committed any of the following three deadly sins of retirement planning?

1. Not having an actual plan

Even if you’ve been diligent about saving for retirement, without a detailed, goal-oriented plan, you’ll have no clear idea whether your savings strategies are working adequately or not. And such plans aren’t just about calculating a retirement savings number, funding your 401(k), and then setting things on auto-pilot.

Once you know how much you’ll need for retirement, you have to plan for exactly how you’ll accumulate that money and monitor your success. The plan should include clear-cut methods for increasing income, reducing spending, maximizing tax savings, and managing investments when and where needed.

What’s more, you should regularly review and update your asset allocation, investment performance, and savings goals to ensure you’re still on track to hit your target figure. With each new decade of your life (at least), you should adjust your savings strategies to match the specific needs of your new income level and age. The plan should also take into consideration unforeseen contingencies, such as downturns in the economy, health emergencies, layoffs, and inflation.

Failing to plan, as they say, is planning to fail.

2. Not maximizing the use of tax-saving retirement accounts

One way or another, the money you put aside for retirement is going to be taxed. However, by investing in tax-saving retirement accounts, you can significantly reduce the amount of taxes you’ll pay.

Depending on your employment and financial situation, there are numerous different plans available. From traditional IRAs and 401(k)s to Roth IRAs and SEP Plans, you should consider using one or more of these investment vehicles to ensure you achieve the most tax savings possible.

What’s more, many employers will match your contributions to these accounts, which is basically free money. If your employer offers matching funds, you should not only use these accounts, but contribute the maximum amount allowed… and do so as early as possible. If you are self-employed, there are options for you too!

Since figuring out which of these plans will offer the most tax savings can be tricky – and because tax laws are constantly changing – you should consult with us and a professional financial advisor to find the one(s) best suited for your particular situation. Paying taxes is unavoidable, but there’s no reason you should pay any more than you absolutely have to.

3. Underestimating health-care costs

One of the most frequent mistakes people make when planning for retirement is assuming that things will always stay the same. Whether it’s tax laws, inflation, market conditions, or marital status, if you don’t carefully consider how your circumstances might change with time, you’re putting yourself and your savings at serious risk.

While many such contingencies are mere possibilities, the one thing that’s certain to change with time is your body and mind. It’s an inescapable fact that our health naturally declines with age, so one of the most risky things you can do is not plan for increased health-care expenses.

With many employers eliminating retiree health-care coverage, Medicare premiums rising, and the extremely volatile nature of health insurance law, planning for your future health-care expenses is absolutely critical. And it’s even more important seeing that we’re now living longer than ever before.

Plus, these considerations are assuming that you don’t fall victim to a catastrophic illness or accident. The natural aging process is expensive enough to manage, but a serious health-care emergency can wipe out even the most financially well off.

Medicaid is one alternative for handling the costs of long-term care, but it requires proper planning strategies. In the best case, that planning happens more than five years in advance of your need!

With so many unknowns, how can you possibly prepare for every possible scenario?

The truth is, you can’t.

That said, you should take advantage of every available precaution within your means. This might mean delaying retirement, purchasing supplemental insurance, investing in long-term care insurance, opening a Health Savings Account, or some combination of these options. We can work with your team to advise you on precautions that are right for you and your family.

Start preparing for retirement now

The best way to maximize your retirement funding is to start planning (and saving) as soon as possible. In fact, your retirement savings can be exponentially increased simply by starting to plan at an early age. No matter your age, income, or asset value, with us as your Personal Family Lawyer®, we can help you put the legal, insurance, financial, and tax systems (LIFT) in place to ensure you’re prepared for a thriving future.

Contact us to schedule a Family Wealth Planning Session today to get started. We’ll review what you have in place now, what you need, introduce you to advisors you can trust, and ensure you and your family are well-protected and planned for, no matter what.

Fixing your Credit Report (and do it for your parents, too!)

You can fix errors in your credit report AND the reports for your parents

It is easy to do, just follow a few simple steps.  When you are home for the holidays, look for evidence that your parent(s) are neglecting their finances or not paying bills.  And, check the interest rates on credit card payments.  If there are errors in their report, you will see interest rates MUCH higher than they should be.

How to Fix Errors in Your Credit Report

While some of those TV commercials for free credit-score report companies are pretty funny, having errors on your credit report is no laughing matter. Indeed, your credit score is one of the main factors determining your access to loans, credit cards, housing, and sometimes even jobs. From late payments that were actually made on time and paid debts that are still listed in collections to fake accounts opened in your name by identity thieves, there are all kinds of errors that can end up in your report.

It happened to me

One morning, I checked email to find several messages from my credit card providers that canceled or severely restricted my credit limits!

Whoa, what happened? Turns out that I was an “authorized user” (not even a co-account-holder) on a card for one of my daughters, and one company “accidentally” added her to my credit record.

Bam! Almost all my cards canceled instantly! Only USBank left my credit alone (and I still use their cards today!). It took three letters and phone calls to each credit reporting agency to get it reported and several more months to restore my credit. I canceled the cards from providers who would not fix things immediately.

Since then, my credit report is frozen by my request (you should do the same), and that has been true for my credit for over 10 years now.

When should they fix your report?

Even if the mistakes were made by the banks, lenders, and/or credit bureaus, they have no obligation to fix them—unless you report them. Given this, it’s vital to monitor your credit score regularly and take immediate action to have any errors corrected. Here, we’ll discuss a few of the most common mistakes found in credit reports and how to fix them.

Finding and fixing errors

The first step to ensure your credit report stays error-free is to obtain a copy of your report from each of the three major credit-reporting agencies: Experian, TransUnion and Equifax. You can get your reports truly free, once a year, at www.annualcreditreport.com or by calling 1-877-322-8228. Other websites may claim to offer free reports, but the Federal Trade Commission (FTC) warns that these offers are often deceptive.

You can get free access to your reports and even helpful credit monitoring services from companies like CreditKarma.com. Check each of the reports closely for errors. Some of the most common mistakes include:

  • Misspellings and other errors in your name, address, and/or Social Security number
  • Accounts that are mistakenly reported more than once
  • Loan inquiries you didn’t authorize
  • Payments inadvertently applied to the wrong account or noted as unpaid, when they were in fact paid
  • Old debts that have been paid off or should’ve been removed from your report after seven years
  • Fake accounts and debts created by identity thieves

Filing a dispute

If anything is inaccurate on your report, file a dispute with the credit bureaus as soon as possible. In fact, notifying these agencies is a prerequisite if you eventually decide to take legal action.

Note that if a mistake appears on more than one report, you’ll need to file a dispute with each credit bureau involved. To ensure your dispute has the best chances of success, follow these steps:

  • Use the appropriate forms: Each credit bureau has different processes for filing a dispute—whether via regular mail or online—so check the particular bureau’s website for instructions and forms. You can find sample letters showing how to dispute credit reports on the FTC and Consumer Financial Protection Bureau (CFPB) websites.
  • Be absolutely clear: Clearly identify each disputed item in your report, state the facts explaining why the information is incorrect, and request a deletion or correction. If you’ve found multiple errors, include an itemized list of each one.
  • Provide evidence: It’s not enough to just say there’s a mistake; you should substantiate your claim with proof. Collect all documents related to the account, including account statements, letters, emails, and legal correspondence. Include copies (never originals) of this paperwork, and highlight or circle the relevant information.
  • Contact credit providers: In addition to the credit bureaus, the CFPB recommends you also contact the credit providers that supplied the incorrect information to the bureaus. Check with the particular company to learn how to file a dispute, and then send it the same documentation to them that you sent to the bureaus.

Here are the contact numbers and web sites for the three credit bureaus:

Review the results of the investigation

Credit bureaus typically get back to you within a month, but their response can take up to 45 days. The response will tell you if the disputed item was deleted, fixed, or remains the same. Disputes basically boil down to whether or not the creditor agrees with your claim or not, and what they say typically goes.

If you’re not happy with the result of the dispute or how the dispute was handled, you can file a complaint with the CFPB, which regulates the credit bureaus. They’ll forward your complaint to the credit provider and update you on the response they receive.

If the credit provider insists the information is accurate, you can provide the bureaus with a statement summarizing your dispute and request they include it in your file, in future reports, and to anyone who received a copy of the old report in the recent past.

Legal action

Finally, if the investigation isn’t resolved to your satisfaction and the inaccurate information in your credit report is causing you harm, contact us to determine if taking legal action would be worthwhile. We can review the information, and if necessary, help you find the right attorney to develop and litigate your case.

Reporting and fixing might not be all there is to do

If you have too many debts, stop the bleeding. Once you deal with any errors on your credit report, it’s time to ensure you’re not still spending more than you can afford each month. Why is this so important? It’s because are only three simple things to do to fix your credit:

  • Pay all of your bills on time
  • Pay down debt (especially credit card debt)
  • Avoid applying for credit

But before you can do these things, you need to make sure you’re not spending more than you earn—you need a budget. Consult your financial planner for help!

Take action today

It may take a long time for your credit score to improve. I was lucky that it took only a few months to fix an error. If you plan on buying a new home, or taking on any other big debt, it’s well worth the time. Read more

With us as your Personal Family Lawyer®, we can help get your credit in top shape by guiding you to put the proper legal, insurance, financial, and tax systems in place to secure your family’s financial future.

Contact us today to get started.


Tax benefits of owning a second home?

Buying a second home can provide you with a place to relax, unwind, and escape from it all. It can also provide you with substantial savings if you take advantage of these tax benefits of buying a second home.

Mortgage Interest

Mortgage interest paid on up to $1.1 million in debt on your first and second homes is usually deductible. Typically, this rule only applies if you treat your second home as a home and not a rental property. But some mortgage interest may still be deductible if you occasionally rent out your second home. To benefit from this deduction under current tax law (it changes), you must use the property for 14 days or more than 10% of the number of days you rent it out a year, whichever is longer.

Tax-Free Profit

You can take up to $500,000 in profit from the sale of a home tax-free if it is your primary residence and you meet the two-year ownership and use requirement. Typically, you do not get the same tax benefit from the sale of a second home. But people have taken advantage of this rule by converting their second home to their primary residence before the sale, thus reaping the tax-free profit.

But in 2009, Congress added a few more restrictions to limit the amount of tax-free profit you can take from a second home. Now, a portion of the profit from the sale of a second home is taxable. The portion is determined by the ratio of the amount of time after 2008 you treated the residence as a second home or rental property and the amount of time you owned it.

Buying a second home can offer many benefits. But to maximize the value of your investment, work with a lawyer to make sure you are not overlooking any potential legal, insurance, financial, or tax problems or opportunities. You must meet other requirements—such as living in the home for two years before you sell it—to take advantage of some of these tax benefits.

A Personal Family Lawyer® can help you ensure you meet the requirements, so you can reap all the benefits of owning a second home.

Contact us today!

Call at 919-883-2800 or schedule an appointment.

When to update your will?

Here are some thoughts from St. Jude’s Children’s Hospital:

Does your will need updating?

Creating a will and estate plan is a good first step in protecting the people closest to you and the assets you’ve worked so hard to accumulate. But even the best will can become obsolete over time.
Consider the many life events that can impact a will and other arrangements:

  • moving to another state
  • changes in the value of your assets
  • a change in marital status
  • birth of a grandchild
  • a change in the real estate you own
  • new tax laws
  • changes in your charitable goals

If you need to update your will, there is no substitute for using a qualified attorney with estate planning experience in your state. A knowledgeable attorney can make sure that your revisions are properly recorded, which can reduce expenses and help heirs receive their inheritances sooner.

Asset Protection Trusts

An article recently published by WealthCounsel addresses the use of Asset Protection Trusts.  Technically, they discuss self-settled trusts, in which your assets are used to fund the trust and you retain a beneficial interest.  We can’t do that in North Carolina exactly that way, so we use a version that irrevocably transfers those assets out of your name and interest and the trust makes your family and children the beneficiaries.

Both strategies are important estate planning tools.  In our experience, the irrevocable asset protection trust​ is an essential part of estate planning even if you are not worried about VA benefits or Medicaid… there is still a place for planning wealth transfer to your heirs in a controlled, predictable, and protected manner.

If you’d like more information, check out this article.  And, give us a call to discuss your estate planning needs.  You will find us to be caring compassionate attorneys, passionate about Estate Planning and Elder Law, and focused​ on VA benefits and Special Needs Trusts.

Why do we ask so many hard questions?

Preparing a will or a trust is central to an overall estate plan.  Of course, there are lots of other documents too, but for the moment, what goes into the Will and Trust?  Answers to our questions … based on planning​ and thinking about the future; planning for both while you  are alive and after you die.

We ask a lot of questions.  Some are about you, and others are about your family.  How do you want to be treated?  How do you want to have your family protected?  What would you like to leave them?  Do you have people​ in your life who need special gifts?  O​r, special provisions?

These are hard questions … some have no immediate or easy answer.  We are patient!  It might take a revision or two to get it all the way you want it.  Don’t worry about all the details we ask about and subsequently put into the wills … everything is important.  If you don’t define it now … someone will argue about it later!

A recent example of this is the Robin Williams estate.  You can find a write up about it here and there on the Internet.  The second article is a great argument for the use of trusts in estate planning.  One question that is asked is if a renovation is considered upkeep on the house.  The question is, what doyou want it to mean?  We help define everything so that your family doesn’t have to argue about it after you are not there to help answer the questions.

Whomever you work with should be as detailed as possible.  So, we have to ask a lot of hard questions!​​  You won’t find our questions in an on-line will package.  And, if trusts are right for you even if you do not have an estate like Robin Williams, we are sure to include that planning in your overall estate plan.

Come see us!  Call us today!

Estate Planning Basics, Part 3 – Coordinating beneficiary considerations

Coordinating Beneficiary Considerations

In our earlier posts, we discussed some issues commonly found with respect to beneficiaries in life insurance​, trusts, and IRAs.  Now, we want to mention why these must be coordinated with your estate plans.  You did get your estate plans set up, right?
A.  Ok, then… why should I Coordinate All Beneficiary Designations with Overall Estate Plan?
This is one of the biggest mistakes that people make when they do their own Will or when they move from one state to another.  People simply forget that the beneficiary designation in the IRA, life insurance, and bank accounts automatically controls who gets the asset.  The Will never comes into play because the assets go to the beneficiary designation.
Suppose you take the time to work with your attorney to lay out (in the Will or Trust) all the ways you want your assets to move to the kids and grandkids, and make arrangements for your church.  That is all great!  But, if your life insurance gives your major asset to your oldest son, and you never changed it when you had the next two kids … do you think your Will will have any effect?  It won’t … in this example your life insurance will pay the oldest, and the others will get nothing.
Suppose you had money in your bank account for grandson Robert, but you neglected to change the beneficiary on the bank account from daughter Susie to grandson Robert.  You’re right … Susie gets what you wanted Robert to have.
Finally, suppose you planned for a Special Needs Trust in your will (see part 2​ of this series).  If you don’t fund it properly with your life insurance policy or other assets, your planning is for naught.
Is that what you wanted?  Improper beneficiary designations may result in unintended consequences, such as adverse tax consequences, failure to distribute the estate as intended, or worse, inadvertently leaving out a family member from an inheritance.
In part 1, we suggested that you set up beneficiaries.  Here, we suggest that you be certain that the beneficiaries you identify match up to the plans you have for your assets.  Don’t leave your wealth differently for different parts of the plan.  Coordinate!
B. Change your plans when you change your life… Remove your Ex-Spouse as Beneficiary!
Often we find former spouses still listed as beneficiaries of life insurance, individual retirement accounts, qualified plans and other financial accounts, even though that clearly wasn’t the intent.  We even find their names on estate plans!  A divorce may not automatically remove your ex-spouse as a beneficiary, depending on the product type (especially qualified retirement plans).  Although ex-spousal claims usually are severed in an estate, a gift in a Will listing your ex-spouse “Joseph” by name might still be presumed to be for that person.
Make sure you follow the guidelines and change beneficiary designations immediately upon a divorce.  You probably should consider that on separating too.  There is a story about Peter Sellers (actor, Pink Panther).  He was in the midst of divorcing a spouse when he died unexpectedly.  The soon-to-be-Ex received the entire estate (millions of dollars) and his children were left with next to nothing.  Don’t let that be you!
Similarly, remove those people who have already predeceased you. This could even apply to family members who are estranged.  As in the other parts we discussed, this situation may result in assets going to unintended beneficiaries, delays in access to funds, and unnecessary legal and administrative expenses.
Bottom line – Review beneficiary designations regularly and certainly after any significant life event.


Beneficiary designations are an important part of our estate planning practice.  We review these with our annual maintenance clients every year.  If you don’t do it already, you should engage a competent attorney to assist you with your estate plans.

It isn’t just the documents!  Planning, discussions about your family’s needs, and help executing the decisions you make – that is the real value you will receive from your attorney!
Go back to:
   Estate Planning coordination – part 3


Estate Planning Basics, Part 2 – Special Needs Trusts and IRAs for heirs

​In part 1, we wrote about life insurance beneficiaries.  In this part, we continue our mini-series about mistakes in planning related to beneficiaries.  This part discusses special needs trusts and a very short summary of IRA issues.

Part 2 – Trusts and IRAs for the children

A. So, how do you protect heirs and children with special needs? Can I just leave them a part of my estate?

Many families have one or more special needs person.  A child with a disabling physical problem is easy to recognize as having special needs, but there are other serious illnesses that are not so obvious, such as substance abuse.  As the person with assets, and decisions to make about life-time care for your loved one, you may wonder what can you do to protect her from the financial effects of her illness?

One way well- intentioned family members approach this is to designate the special needs individual as beneficiary of life insurance or other financial products, or as heirs of an estate plan.  It is what most people would do. But wait!  This might not work out as well as you’d like.  You could create several kinds of problems, including loss of public benefits and loss of the asset through mis-management.

First, your good intentions may disqualify the special needs child or troubled adult from various benefits and governmental assistance.  Many people with serious medical or mental conditions are receiving Supplemental Security Income (SSI) or disability income (SSDI).  Some are on Medicaid or other local benefits.  Your gift would likely put them over the asset limit and cause loss of benefits.  That isn’t what you wanted!

Second, your gift might be simply taken by creditors, or unwisely spent by the recipient.  You probably would like to help with housing or food costs for your troubled child or grandchild, but not to fund continued abuse or to provide a windfall for a creditor!

You can work this out by seeking the help of a qualified attorney who understands the needs of the families with loved ones with disabilities.  Careful attention to the details in your specific case will make the best outcome.  You can use a “supplemental needs trust” (“SNT”) or special accounts that support the child if you cannot.  The best approach is to integrate your desires with the child’s parents’ planning and possibly use the assets to fund a special (or supplemental) needs trust.

A SNT is like other trusts, but with unique provisions.  Like other trusts, a trustee is named to manage funds on behalf of the beneficiary.  But, in a SNT the trustee is required to consider the effect any distribution would have on the individual’s entire need.  If giving the child money for rent would affect eligibility for Medicaid or SSI, the trustee has to consider that and protect the beneficiary.

A SNT is a great way to protect a child with disabilities, or a troubled adult heir who can’t manage finances on his own.  But, this approach requires careful planning.  See a qualified attorney for help! We regularly help our clients protect heirs, spouse, and others during their lifetimes and as part of a comprehensive distribution of wealth through their estate plans.

B. IRA designations should be easy…  I just list beneficiaries for the IRA, right?

Well, not really!  IRAs require an entire course to understand their unique issues.  But, here are a couple of important points… IRAs are often qualified investments, meaning that taxes are not yet paid (they are “tax deferred”).  Taxes are due when the assets are taken out of the IRA.  The goal in a gift of the IRA should be to provide the eventual recipient the maximum flexibility in handling the divesting of assets and in paying the taxes.  Here are some key points:

  • IRAs should never be owned by a Trust.  Death of the IRA owner will probably cause a complete divesting of the holdings, along with loss of the tax benefits (meaning, you have to pay them right then).
  • You can make the trust a beneficiary if your servicer allows it and if you set up the Trust correctly.  But, great care is required, and the trust must have actual people as its beneficiaries. If you have more than one beneficiary, then consider separate trusts for each.
  • Don’t leave an IRA to a trust for a charity… there are other better ways to manage charitable giving.
  • Beneficiaries with special needs or troubled adult children or relatives should be protected by designating a special needs trust as a beneficiary.  And, of course, with a trustee who will act responsibly.
  • Minor children should be the primary beneficiaries, with a trust as secondary.  Look back at the information about minors if necessary.
  • Pass along IRAs to your spouse as a “spousal rollover.”

Failure to handle IRAs correctly will cause problems and could result in loss of all those tax benefits!​  Seek a qualified financial planner (you can look for certifications, such as CFP) or tax attorney for this complicated area.

Review Part 1 of this series – Beneficiary Designations

Look ahead to the next part, Part 3 – Estate planning coordination​.

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