Stop the Sneaky Tax!

It’s Time to Stop the Sneaky Tax!

Those of you who follow my blog know that I have been somewhat obsessed with the legislation that I call the Death of the Stretch IRA.  If you’re new to my blog, please read some of the preceding posts – they’ll tell you just how much this legislation will cost IRA owners.  The worst part of the Death of the Stretch IRA is that most beneficiaries (your children and grandchildren) won’t have a clue about how much of their inheritance they have lost to taxes.  When they inherit your IRA after you die, your beneficiaries will suddenly have more money than they had before.  Our government is counting on them to be content with their higher bank balance, and is hoping that they never notice that an enormous chunk of their inheritance ended up in Uncle Sam’s pockets before the remainder found its way to them.   That’s what makes this tax so nefarious and, well, sneaky!

Our government has a lot of expensive problems right now – they’re looking to come up with a viable heath care system, build a wall on our southern border and I can’t even begin to imagine how much it will cost to repair the damage done by Hurricane Harvey.  The Treasury doesn’t even have enough money to pay for their day-to-day operations, much less all of this – they’re going to be raising the debt ceiling next month!  I’d bet my own IRA on the fact that the government is planning to include the Death of the Stretch IRA – and the $1 Trillion in revenue that it will generate – as part of an appropriations or budget action that will be voted on before the end of 2017.

You Can Help Stop the Sneaky Tax

If you are a loyal reader, you know that we have been writing our clients and friends to warn them about the sneaky tax, and working on solutions to minimize the damage that this legislation will do.  Now it’s time to send a shot across their bow and tell the government that they’d better find their revenue someplace else besides your IRA.  We are asking your help to start a grass-roots protest against the Sneaky Tax which would kill the stretch IRA—an incredibly useful estate planning tool.  This new law would be so absolutely devastating to so many families across the country, our clients included, that we can’t just sit by and watch it happen.

Write Your Congressman Now

Please help us get the message to our legislators that we will not stand for them picking the pockets of our children and grandchildren.  Please consider going to www.stopthesneakytax.com to add your name to the list of people who are unhappy with this proposed new law and send an email to your Congressmen asking them to say NO to the sneaky tax.  You can also keep up to date with what is going on with this law by joining our new private Facebook group: SOS Save Our Stretch!  Stop the Sneaky Tax!  You can join the group by going to www.saveourstretch.com.  For a limited time, joining the Facebook group will entitle you to a free Advance Reader Copy of Jim’s newest book – The 5 Greatest Tax-Saving Strategies for Protecting Your Family from the New Tax Law.

Sign our Petition to STOP Washington’s Planned Trillion Dollar IRA Sneaky Tax at www.stopthesneakytax.com.

Join our Facebook Group for breaking news and updates at www.saveourstretch.com.

And please forward this to everyone you know who has an IRA!

-Jim

Action you can take:
Forward this petition to all of your friends’
Join our Facebook Group and for a limited time get a FREE advanced reader copy of my upcoming book dedicated to stopping the sneaky tax.

You can view my previous posts on the Death of the Stretch IRA by clicking the links below;

Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?
Are There Any Exceptions to the Death of the Stretch IRA Legislation?
How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?
Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?
What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?
How Does The New DOL Fiduciary Rule Affect You?
Why is the Death of the Stretch IRA legislation likely to pass?
The Exclusions for the Death of the Stretch IRA
Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA
Using Roth Conversions as a Possible Solution for Death of the Stretch IRA
How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA
How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA
President Trump’s Tax Reform Proposal and How it Might Affect You
Getting Social Security Benefits Right with the Death of the Stretch IRA
The Best Age to Apply for Social Security Benefits after the Death of the Stretch IRA
Part II: The Best Age to Apply for Social Security Benefits after the Death of the Stretch IRA
Social Security Options After Divorce: Don’t Overlook the Possibilities Just Because You Hate Your Ex
Is Your Health the Best Reason to Wait to Apply for Social Security?
Roth IRA Conversions and the Death of the Stretch IRA
How Roth IRA Conversions can help Minimize the Effects of the Death of the Stretch IRA
How Roth IRA Conversions Can Benefit You Even if The Death of Stretch IRA Doesn’t Pass
The Death of the Stretch IRA: Will the Rich Get Richer?
The Best Time for Roth IRA conversions: Before or After the Death of the Stretch IRA?
Roth IRA Conversions and the Death of the Stretch IRA
Part II: How Roth IRA Conversions Can Help Protect You Against the Death of the Stretch IRA
Roth IRA Recharacterizations and the Death of the Stretch IRA
The Risk of Roth IRA Recharacterizations & The Death of the Stretch IRA

How Flexible Estate Planning Can Save Your Children Money

Using Flexible Estate Planning as a Possible Solution for the Death of the Stretch IRA

How Flexible Estate Planning Can Save Your Children Money

The previous posts in this series discuss the proposed legislation that would spell the Death of the Stretch IRA, and offer some ideas that you might be able to incorporate into your own estate plan to reduce its devastating effects. This post will show you how flexible planning can minimize the damage that income taxes could do to your childrenís inheritances after the Death of the Stretch IRA.

The $450,000 Exclusion, Use it or Lose it!

I want to go into detail about something that I first mentioned in my post of February 28, 2017, which was the proposed $450,000 exclusion to the Death of the Stretch IRA legislation. The proposed legislation said that each IRA owner would be entitled to their own exclusion of $450,000. Regardless of how many retirement accounts you own, and how many beneficiaries you name on them, it is critical that you donít overlook the fundamental step of making sure that your exclusion can be used after your death. If you donít use it, you will lose it!

Readers who have been around as long as I have may remember estate planning in the late 90ís, when the top federal estate tax rate was an outrageous 55% and only $600,000 of your estate could be protected from it. And in order to protect more of your assets from the IRS, attorneys had to draft elaborate trusts (often referred to as marital, or A/B trusts) which would allow each spouse to have a $600,000 exclusion of their own. That way, a total of $1.2 million of your familyís money could be exempted and would pass to your children without being subject to federal estate tax. Remember those days?

Common Beneficiary Language Can Cause Your Heirs to Lose an Exclusion

Well, now you have to think the same way about the $450,000 exclusion that is proposed in the Death of the Stretch IRA legislation. The proposal says that the change will apply only to the extent that an individualís aggregate account balances exceed the exclusion amount. But what do most people do when they fill out their beneficiary forms? They say, I want my spouse to have this money, and if my spouse dies before me, I want it to go to my children. Sound familiar? Well, suppose you have $450,000 in an IRA, and your spouse has $450,000 in an IRA. You die, your spouse rolls your IRA in to her own IRA, and now she has $900,000. In an earlier post, I told you that your spouse is an exempt beneficiary ñ so any money that you leave to her wouldnít have been subject to the $450,000 exclusion anyway. But suppose your spouse dies a week after you do. Since her IRA was worth $900,000 when she died, your children can only exclude $450,000. So half of her account could be sheltered under the old IRA rules, but the remainder would be subject to the proposed new IRA rules.

A Better Plan – Use Both Exclusions

A better plan would be to make sure that, if possible, you and your spouse can use both of your exclusions. For example, suppose you have $1 million in an IRA, and your spouse has $1 million in her own IRA. Both of you have estate planning documents that give your surviving spouse the right to disclaim to the next beneficiary in line. You die, and now your spouse has a decision to make. Sheís your beneficiary, and she can accept your IRA if she feels she needs the money. But suppose she doesnít need all of it? She could say, ìIíll be quite comfortable with only $550,000 of this, plus the $1 million from my own IRA.î In that case $450,000 of your IRA would go to the next beneficiary in line ñ your children. Since the amount that your spouse disclaims is within the exclusion amount, $450,000 of your IRA will go to your children and can be distributed according to the old rules. Then when your spouse dies, her entire IRA will pass to your children and they can exclude $450,000 of her IRA from the new rules too.

Flexible Estate Planning is the Key

Flexible estate planning allows your surviving spouse to decide who gets what after your death, and is the key to minimizing the harsh effects that the Death of the Stretch IRA legislation will bring if it is passed. Stop back soon for some more random thoughts!

-Jim

For more information on this topic, please visit our Death of the Stretch IRA resource.

 

P.S. Did you miss a video blog post? Here are the past video blog posts in this video series.

Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

Are There Any Exceptions to the Death of the Stretch IRA Legislation?

How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

How Does The New DOL Fiduciary Rule Affect You?

Why is the Death of the Stretch IRA legislation likely to pass?

The Exclusions for the Death of the Stretch IRA

Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

Using Roth Conversions as a Possible Solution for Death of the Stretch IRA

How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA

How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

Lange’s Cascading Beneficiary Plan may be a good option to protect your family against the Death of the Stretch IRA

Using Langes Cascading Beneficiary Program as a Possible Solution for Death of the Stretch IRA James Lange

When I meet with new clients for the first time, one of the most aggravating things that I often find is that their existing estate planning documents are “set in stone”, and can cause the estate to be subject to unnecessary taxes.  What do I mean by that?

Let’s say you have Jack and Jill, and their three kids John, James and Judy.   Jack is 87, and Jill is 86.  Jack and Jill both had wills that said, “I want my spouse to inherit everything, but if he or she is dead then I want my children to get everything.”  Sound familiar?   After Jack and Jill both die, their assets will be passed on to their kids as they specified, most certainly.  The problem is that their kids will more than likely end up with less money than they could have.

Why is that?  Jack dies, leaving $3 million to his wife.  Is it really likely that Jill is going to need $3 million to live on for the rest of her life?  Probably not.  The vast majority of wealthy individuals that I’ve worked with are in that position because they have never led an extravagant lifestyle, and in my experience, leopards don’t change their spots all that easily.    More than likely, what will happen is that, a few years down the road, Jill will die with even more money in the bank.  Their hard-earned savings will eventually go to their children as they wanted, but Jack and Jill may have missed the chance to use Lange’s Cascading Beneficiary Plan and possibly save them a significant amount of taxes due on their inheritance.

Using Disclaimers in Your Estate Plan

A disclaimer simply means that your beneficiary says “I don’t want this money that I’ve been given”.  So let’s assume that Jack names Jill as his primary beneficiary, and their three children as contingent beneficiaries.  After Jack’s death, Jill has nine months to think about it and, if she says “I want that money”, she gets it.  But what happens if Jill is terminally ill and doesn’t expect to live much longer?  She can disclaim the money say “I will never live long enough to spend $3 million, but I would like to have $300,000 for my own use.  The remaining $2.7 million can go directly to our kids.”  Jill can’t change what Jack has instructed – meaning that she can’t cause one child to receive more money than what he specified, or ask that some of the money be given to their grandchildren if Jack didn’t include them as beneficiaries.  But she can step aside and say “I don’t need all of this money; give it to the next one in line”.  By disclaiming, Jill allows Jack’s money to be passed directly to their children if she doesn’t need it.  In many cases, disclaiming can be far more tax-efficient than having Jill inherit all of the money, never using it, and then passing on to their children.

Lange’s Cascading Beneficiary Plan (LCBP)

Many years ago, I designed a groundbreaking concept that I call Lange’s Cascading Beneficiary Plan.  It incorporates the use of disclaimers into the estate plan, which allows your surviving spouse to have maximum flexibility after your death.  This type of flexible estate planning can make a huge difference for your beneficiaries after your death.  Assuming that your wills contain the appropriate language that meets both federal and state requirements for a valid disclaimer, your beneficiary can make decisions that are based on your family’s situation and tax laws that are in effect long after your will was prepared.  And the best part is that they have up to nine months after your death to disclaim – so their decision can be based on your family circumstances and the tax laws that are in effect at the time.

Lange’s Cascading Beneficiary Plan may become an even more valuable estate planning tool after the legislation that I call the Death of the Stretch IRA is passed.  Please stop back soon for an update.

-Jim

For more information on this topic, please visit our Death of the Stretch IRA resource.

 

P.S. Did you miss a video blog post?  Here are the past video blog posts in this video series.

Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

Are There Any Exceptions to the Death of the Stretch IRA Legislation?

How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

How Does The New DOL Fiduciary Rule Affect You?

Why is the Death of the Stretch IRA legislation likely to pass?

The Exclusions for the Death of the Stretch IRA

Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

Using Roth Conversions as a Possible Solution for Death of the Stretch IRA

How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA

New Social Security Rule Will Hurt Women by Eliminating Benefits Options

James Lange, CPA/Attorney, Advises Married Couples Ages 62-70 to Apply and Suspend NOW. After April 29, 2016, it will be too late!

In early November, President Obama signed the Bipartisan Budget Act of 2015 into law and the repercussions are devastating to the married women of our country.

Pittsburgh – December 16, 2015Lange Financial Group, James Lange, Pittsburgh, Social SecurityMarried women, statistically the widows of the future, will pay a high price due to the changes that the Bipartisan Budget Act of 2015 has made to Social Security. Pittsburgh attorney and CPA James Lange takes action by releasing audio and video presentations as well as transcripts and a report that will help couples ages 62-70 navigate this new rule and protect their benefits while they still can!

SOCIAL SECURITY SURVIVOR BENEFITS ARE CRITICAL TO WOMEN

The financial well-being of widows is often dependent upon the choices that are made while their spouses are still alive. Spousal and survivor Social Security benefit choices can mean the difference between living comfortably in retirement and falling under the poverty line for women whose spouses leave them behind. Widows are commonly younger than their deceased husbands and the Social Security benefits they have earned, especially in the Boomer generation, are commonly less than that of their deceased husbands. This means that a widow will depend on collecting survivor benefits, often for many years, based on the benefits to which their deceased spouses were entitled.

“One of the best things a husband can do to protect his wife in widowhood is to maximize his own Social Security benefits. One technique that we use with our clients is apply & suspend.” James Lange of Pittsburgh-based, Lange Financial Group, LLC comments. “The law prior to the Bipartisan Act allowed the husband to apply for, and then suspend collection of his benefits, while allowing his wife to collect a spousal benefit. It was a win-win for our clients!”

This technique was used strategically to maximize the husband’s and wife’s long-term benefits. That, unfortunately, is coming to an end, with the exception of certain couples who take the appropriate action between now and April 29, 2016. For many couples, the income stream from spousal benefits in the previously allowed apply and suspend technique made it possible (or at least more palatable) for the husband to wait until age 70 to collect Social Security, thus maximizing their benefits.

“This new law cuts off that income stream, making it if not impossible, at least more difficult, for husbands to choose to delay collection of their benefits.” Lange warns, “Unfortunately, it is the widows of these husbands who cannot maximize their Social Security benefits who will be left in reduced circumstances for the rest of their lives.”

JIM LANGE’S ADVICE

DO NOT WAIT. Congress has eliminated one of the best Social Security maximization strategies. Fortunately, some recipients may be grandfathered already and others could be grandfathered if they act between now and April 29, 2016. Others will have to make do with the new laws. In either case, now is the time to review your options. We have posted a one hour audio with a written transcript explaining the old law, the new law and the transition rules. Readers can go to www.paytaxeslater.com to access this audio and transcript.

ABOUT JAMES LANGE Jim Lange, Pittsburgh, Social Security

James Lange, CPA/Attorney is a nationally-known Roth IRA and retirement plan distribution expert. He’s also the best-selling author of three editions of Retire Secure! and The Roth Revolution: Pay Taxes Once and Never Again. He hosts a bi-weekly financial radio show, The Lange Money Hour, where he has welcomed numerous guests over the years including top experts in the fields of Social Security, IRAs, and investments.

With over 30 years of experience, Jim and his team have drafted over 2,000 wills and trusts with a focus on flexibility and meeting the unique needs of each client.

Jim’s recommendations have appeared 35 times in The Wall Street Journal, 23 times in the Pittsburgh Post-Gazette, The New York Times, Newsweek, Money magazine, Smart Money and Reader’s Digest. His articles have appeared in The Journal of Retirement Planning, Financial Planning, The Tax Adviser (AICPA), and other top publications. Most recently he has had two peer-reviewed articles published on Social Security maximization in the prestigious Trusts & Estates magazine.

To learn more, or sign up for their newsletter, visit www.paytaxeslater.com.

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4 Reasons Why We’re Excited that Retire Secure! is Interactive on the Web!

If you haven’t made your way to www.langeretirementbook.com yet, now is the time!

Here at the Lange Financial Group, LLC, we are very excited to bring you an interactive version of Retire Secure! A Guide to Getting the Most Out of What You’ve Got.

Reason #1 – The entire book is on this website. Yes, all 420 pages of the book, including the front and back covers, all about the best strategies for retirement and estate planning.

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Reason #2 – The book is divided into chapters for ease of reading. Meaning, you don’t have to flip through 400-some pages to get to Chapter 11 – The Best Ways to Transfer Wealth and Cut Taxes for the Next Generation.

Lange-Retirement-Book-Wesbite-2

Reason #3 – We honestly haven’t seen anything like this before. Granted, I’ve read magazines on viewers where you can flip the pages as you read. But not a website for a book that includes a viewer, as well as a forum where readers can engage with each other.

The comments are moderated by the Lange Financial Group, LLC staff and myself. One of us will reply to your comment as soon as we can. To leave a comment, all you need to do is connect with your Amazon, Facebook, or LinkedIn account. This measure is for your protection, as well as ours. We don’t want spammers posting comments or incorrect information about such an important topic.

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Reason #4 – We are hoping this interactive website encourages you to purchase the book! Retire Secure! is available from Amazon and JamesLange.com. Once you’ve read the book, feel free to return to LangeRetirementBook.com to ask questions, as well as Amazon and Goodreads to review the book for the benefit of others.

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How Advisors Should Handle the IRA and Retirement Plan Beneficiary Form

retirement-plan-beneficiary-form-trusts-the-roth-revolution-james-langeThe ability to know what to do with an IRA or retirement plan beneficiary form can often be detrimental.

First, know we are on shaky ground. The conservative and proper legal advice is to request the client have their estate attorney fill out the beneficiary designation forms.

There are several advantages of having an estate attorney fill out the forms

  • Eliminates or drastically reduces your exposure for not filling out the form correctly and consistent with the clients’ wishes
  • Presumably, the estate attorney has a “big picture” of how the estate will be distributed and the IRA and retirement plan beneficiary designation is an important piece to that entire puzzle

For most traditional clients, I prefer the plan described in chapter 12 of Retire Secure! (Wiley, 2006). The chapter, “The Ideal Beneficiary Designation of Your Retirement Plan” describes what I consider the “master plan”.

Assume that you have a traditional family with children and grandchildren or even the potential to have grandchildren in the future. Let’s also assume that your client and their spouses trust each other completely and the client’s children are by now responsible adults (if not, see the discussion about trusts below).

Primary Beneficiary:

My spouse __________________

Contingent beneficiary

My children______________, ___________, and __________equally, per stirpes

Per stirpes is Latin for by representation. Adding per stirpes is critical. Let’s assume one of your client’s children either predeceases your client or your client’s child wants to disclaim a portion of the inherited IRA to their children, i.e. your client’s grandchildren. Without the words per stirpes, (assuming that the form does not have a box to check to indicate a per stirpes designation), the share of the predeceased or disclaiming child would not go to their children, but rather to their siblings, because the majority of beneficiary forms do not assume a per stirpes distribution unless you specifically state per stirpes in the designation. Presumably, most of your clients do not want to disinherit their grandchildren. Without per stirpes, you could have a grandchild that not only lost their parent, but also lost any inheritance they may have used for support, education, etc.

I also recommend putting current addresses and social security numbers on the IRA or retirement plan beneficiary designation.

Please note, however, that even this solution is only a partial and temporary solution. This solution still allows the possibility of having your client’s grandchild (or child if they are young) drinking $1,000 per bottle champagne to celebrate their purchase of a new Hummer on their 21st birthday.

So, to do the job right, you should name a well drafted trust, either a dedicated trust or a trust that is currently part of the client’s will or living trust, for the benefit of grandchildren (or children if client’s children are young and/or not sufficiently mature to handle an inheritance). In addition, you need at least one trust for each set of your client’s children’s children. There are lots of variations on these trusts, but for the IRA beneficiary purposes, they must meet 6 specific conditions in order to preserve the “stretch IRA” for the grandchildren.

Therefore, what will be a combination of practical, yet also proper advice is to fill out the forms the way I have suggested and recommend both orally and in writing that your client see a qualified estate planning attorney to properly fill out the IRA and retirement plan beneficiary forms.

-Jim

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

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Keeping Up with Your Kids and Grandchildren

keeping-up-with-your-kids-and-grandchildren-the-roth-revolution-blog-james-langeAn excerpt for the Lange Financial Group Newsletter:

Social media is a great way to keep in touch with family. I feel connected to a number of relatives and friends who live in different cities because I spend a few minutes on Facebook. In fact, recently I was able to tell my brother how his own daughter was doing because of something she posted on Facebook and he doesn’t use Facebook.

If you have young grandchildren, there’s a good chance photos are posted regularly. This way, you can see current photos of the little ones, and you don’t have to feel like you’re pestering your kids to send you physical copies. Of course, social media has its limits. Because sites are more public, probably too public, don’t expect to engage in detailed or private family matters over this medium.

Schedule a weekly phone or video call: Arranging a weekly call doesn’t have to be a struggle. A simple 15 minute call is time enough to catch up regularly. The more you and your kids do it, the easier and more routine it will become. However, if you’re more interested in receiving information, let your kids do the talking. Try to schedule a time that is mutually available for everyone, so the call is a treat and not a chore.

Share a monthly meal: For kids who are closer to home, make time once a month to eat a meal together. This is an easy way to get all your kids under one roof again. Just because your kids are grown up doesn’t mean they won’t enjoy a home-cooked meal every now and then.

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Trusts as Beneficiaries of Retirement Plans: A Possible Alternative to the Stretch IRA?

trusts james langeIf you’ve read my earlier posts, you know that much of the new edition of Retire Secure! addresses the ramifications of the legislation that, if passed, will kill the Stretch IRA. If this potential change is a concern for your family, then Chapter 17 is a “must-read” for you because it offers a possible alternative that will allow them to continue the tax deferral of your retirement plan for many years.

Trusts may be appropriate in many situations. We use them for young beneficiaries who, by law, cannot inherit money, and for older beneficiaries who can’t be trusted with money. Trusts can also be used to help minimize taxes at death (although this is not as common as in previous years). With more frequency, though, our office is using trusts to replace the benefits of the Stretch IRA. This application started when all of these campaigns to kill the Stretch IRA began, and we began to seek alternatives for our clients. Chapter 17 compares the value of an IRA assuming that the non-spouse beneficiary must withdraw the proceeds within 5 years, to the value of an IRA when it is protected by a specific type of trust. I think you will find the results very surprising.

The rules governing trusts are very complex, and, if you are interested in incorporating them in to your own estate plan, you will need the assistance of a competent professional.

Do you donate to charity? If so, my next post will cover the changes in the laws that affect charitable contributions.

All the best,

Jim

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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The Ideal Beneficiary for your IRA or Retirement Plan

beneficiary-designation-retirement-plan-james-langeGive Your Heirs as Much Flexibility as Possible

I gave serious thought to changing the title of Chapter 15, which discusses the ideal beneficiary for your retirement plan, to “My Pet Peeve”. This is because of how annoying I find it to see people spend thousands of dollars to create elaborate wills and trusts, only to render them useless because they carelessly listed the wrong beneficiary on their retirement plan. Unfortunately, it’s an all too common mistake.

What follows here is one of the most, if not THE most, important concepts in the book. Your will and trust documents do not control the distribution of your IRA or retirement plans. Any account that has a specific beneficiary designation will be distributed to the individuals listed on that beneficiary form, regardless of what your will or trust says. Why is this important? Well, I’ll tell you about a situation I became aware of recently. A gentleman who had been married and divorced twice prepared a will that left all of his assets to his children from his first marriage. Most of his wealth was in his retirement plan, though.   He died unexpectedly, before he could get around to changing the beneficiary designation of that plan from his second ex-wife to his children. After his death, the second ex-wife (who had since remarried) received the very large retirement plan, and his children received the non-retirement assets, which were worth far less than the retirement plan. To add insult to injury, the second ex-wife made sure that his children knew that she had used her inheritance to buy herself and her new spouse very expensive cars – even going so far as to post photos on social media websites as proof! So your beneficiary designations are very, very important – so important that, in fact, if you’re my client I won’t even let you fill them out by yourself!

I like to give my clients as many options as I can. The beneficiary designation that I usually recommend gives your heirs as much flexibility as possible. It allows both your surviving spouse and your adult child, assuming that the child is the contingent beneficiary, to disclaim or refuse the inheritance to his or her own children (your children and/or grandchildren). Under current laws, this allows the children and grandchildren to take minimum distributions based on their own life expectancy. Will I still do this if the law changes? More than likely, yes, but the financial benefits will not be as significant as they were in previous years. If this topic interests you, then you’ll probably want to read Chapter 15 to learn about all the changes.

My next post will continue on the topic of beneficiary designations, and why they are important if your estate plan includes trusts. Stop back soon!

Jim

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

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Disclaimers: Who on Earth Would Refuse to Accept an Inheritance?

inheritance stretch ira james lange the roth revolution blogWho on Earth Would Refuse to Accept an Inheritance?

Plenty of people!

The concept of disclaiming, which means that you refuse to accept an inheritance, is often surprisingly difficult for clients to accept. Who on earth would refuse to accept an inheritance? When I get this question, I have to laugh because the obvious assumption is that the beneficiary is turning away a rare opportunity to increase his or her wealth with little or no effort. So let’s look at a hypothetical situation. Suppose your rich uncle wrote his will twenty years before he died, and the will provided that, at his death, you would inherit a small apartment building that he owned. In the twenty years since his will was written, though, your uncle’s health declined and he did no maintenance at all on the building. The angry tenants moved out long ago, and the building has been vacant for ten years. Vandals broke the windows and stripped the building of its plumbing and wiring. The city has condemned it because it is a nuisance, and the owner is going to have to pay to have it demolished. Do you still want your inheritance now?

Beneficiaries always have the right to disclaim (or refuse) all or part of an inheritance. This idea has traditionally been a cornerstone when planning for the multi-generational benefits of a Stretch IRA. Under the current law, if the named beneficiary chooses to disclaim an IRA or retirement plan, the contingent beneficiary is able to use his or her own life expectancy to determine the Required Minimum Distribution from that account. In a case where a surviving spouse disclaims to children, this allows the IRA to be “stretched”, allowing maximum growth as well as income tax savings.

If the Stretch IRA is eventually eliminated, disclaimers will likely play less of a role in estate settlements. There is, however, a rapidly growing group of attorneys (including me) who use and will continue to use at least some form of disclaimer in the estate plans of most clients. I have used them in my practice for years, and have found that they can give families a lot of flexibility during what is usually a very stressful time.

One final note about disclaimers: beneficiaries who are on Medicaid may be disqualified from their benefits if they receive an inheritance. They may be able to refuse the inheritance and keep those benefits, but this depends on the laws of the state that they live in and the terms of the grantors will.

These ideas are presented in Chapter 14.

My next post will continue to expand on the concept of the Stretch IRA, but will specifically address the ramifications of choosing one beneficiary over another. Stop back soon!

Jim

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

Save

Save

Save

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