Archive for October, 2012
STATE INHERITANCE TAX – ANOTHER DANGER OF DO-IT-YOURSELF PLANNING
An elderly couple recently learned the hard way that do-it-yourself disability planning can have serious unintended consequences. Like many people before them, the couple followed the advice of friends, their friendly neighborhood banker, or (our favorite) “Marge” at Burger King, and added their daughter’s name to their bank account. This was their way of ensuring that someone would be able to handle their finances if one or both of them became disabled.
No one, not even the bank where the account was located, thought to tell the couple that they had essentially made their daughter a one-third owner of the account. The couple didn’t find out until, after the untimely death of their daughter, they discovered that they owed state inheritance tax on the one-third of the account that their daughter “owned” at her death. They had to pay thousands of dollars in taxes because state law said that the couple had “inherited” their own money!
The couple in this story lived in Pennsylvania, one of seven states with a state inheritance tax. Although Florida is not currently one of the seven (the others are Indiana, Iowa, Kentucky, Maryland, Nebraska, and New Jersey), state law is ever-changing so it is always best to consult with an attorney rather than trying to do your own estate or disability planning. With proper legal advice, the Pennsylvania couple could have achieved their objectives and saved thousands of dollars by simply executing a well-drafted durable power of attorney.
For more on this story, see http://pubs.aarp.org/aarpbulletin/201210_DC/?pg=6&pm=2&u1=friend#pg6 .
IT’S ESTATE PLANNING AWARENESS WEEK!!
Hopefully we do our part to increase awareness of the need for estate planning every week with our blogs and newsletters, but we just had to make sure you knew that this week is National Estate Planning Awareness Week. Congress officially designated the third full week of October as National Estate Planning Awareness Week in 2008, stating that:
“[I]t is estimated that over 120,000,000 Americans do not have up-to-date estate plans to protect themselves or their families in the event of sickness, accidents, or untimely death; …
[M]any Americans are unaware that lack of estate planning and `financial illiteracy’ may cause their assets to be disposed of to unintended parties by default through the complex process of probate; …
[C]areful planning can prevent family members or other beneficiaries from being subjected to complex legal and administrative processes requiring significant expenditure of time, and greatly reduce confusion or even animosity among family members or other heirs upon the death of a loved one; [and] …
[T]he implementation of an estate plan starts with sound education and planning, and then may require the proper drafting and execution of appropriate legal documents, including wills, trusts, and durable powers of attorney for health care; ….”
House Resolution 1499, 110th Congress (2008).
Although we are often disgruntled with what Congress does (or fails to do), we think that this time they got it right. Please feel free to share this information, or any of our other newsletters or blogs, with your loved ones. We also invite you to attend one of our Truth About Estate Planning workshops, “like” us on Facebook, or “follow” us on Twitter to increase your own awareness.
WHAT SHOULD I DO WITH MY INHERITED IRA?
As employer pension plans go the way of the dodo bird and social security becomes less secure, we are seeing more and more of our clients have planning for their retirement with individual retirement accounts (IRAs). In fact, it is becoming common for IRAs to make up a significant percentage of a client’s total assets, especially when he or she is at or near retirement age. Because so much wealth is likely to be passed to the next generation through IRAs, it is important for IRA owners and potential beneficiaries to know how to get the most out of inherited IRAs.
In a traditional IRA, the money you put in is allowed to grow tax-deferred (you don’t pay taxes on gains as they are incurred). However, at a certain age (70 ½), you will be required to start taking distributions in an amount that is based on your life expectancy. You will pay income tax on these required minimum distributions (or any other distributions you choose to take).
If you leave your IRA to your spouse, the account can “roll over” into your spouse’s name. This means that the required minimum distributions will be based on your spouse’s (hopefully longer) life expectancy, allowing for a longer deferral of taxes (often called a “stretch out”). Your spouse can name younger beneficiaries to take over the IRA next, producing an even longer stretch out.
What if you leave your IRA to someone other than your spouse? The rules change a little; no “roll over” is allowed. An individual beneficiary can either cash out the IRA or retitle the account. While cashing out may be tempting, it will result in immediate tax consequences. The alternative is to stretch out the distribution schedule (and thus the tax-deferred growth) of the IRA by changing the title so that required minimum distributions will be based on the beneficiary’s life expectancy.
If you’re thinking this sounds complicated, don’t worry; you also can take advantage of IRA stretch out opportunities through proper trust planning. For more information, call us to set up a free estate planning consultation or see How to Handle Inherited IRAs by Jane Bryant Quinn: http://www.aarp.org/money/investing/info-10-2012/how-to-handle-inherited-iras.html
HELP US END ALZHEIMER’S DISEASE
Alzheimer’s disease is the sixth-leading cause of death in our country. That sinister statistic alone provides ample reason to stand up and fight. What is even more powerful, however, is witnessing the devastating progression of Alzheimer’s disease firsthand.
Because of the nature of our business, all of us at Cramer Law Center have seen the toll that Alzheimer’s disease takes on its victims and their families. Some of us have watched our own loved ones lose first their minds and then their bodies to the disease.
This cause is so personal to us that we have decided to participate in this year’s Walk to End Alzheimer’s put on by the Alzheimer’s Association. We invite you to join us for the Walk on November 3, 2012 at the Times Union Center or to donate to the cause. For more information, see our Cramer Law Center team page: