Blog Series: Five Easily Avoided Estate Planning Mistakes

Posted on March 30, 2013 by James Lange in Estate Planning.

Estate planning mistakes are made all the time and usually this is because the financial advisor/accountant/attorney has overlooked important issues. We have chosen to highlight five very common mistakes in this blog series. All of these mistakes are easy to avoid, as long as you and your trusted advisors know how to recognize them!

It is important to also consult with an attorney in your State in order to review whether or not these issues pertain to you. In any case, it is recommended to ask your estate planning attorney what the most common mistakes they encounter on a regular basis are, and bring up these issues with them for discussion.

Mistake 3 – Not having your estate updated on a regular basis.

It is best to have your estate plan reviewed at least once every three years to make sure that everything is current. Very often someone has made changes in their life during a three year period of time. This can include death, divorce, new children or grandchildren and changes in desired beneficiaries.

In addition to this, the individual may have moved to a new State and their existing estate plan does not comply with the various rules of the new State. It is extremely important. Also, new tax laws often warrant changing the estate plan.

This is only one of the various common mistakes. Again, please make sure that you consult a competent estate planning attorney to make sure everything in your estate is in order and fits perfectly with your individual situation!

Blog Series: Five Easily Avoided Estate Planning Mistakes

Posted on March 29, 2013 by James Lange in Estate Planning, Tax Law.

Mistake 2 – Believing that having a will avoids probate.

Not true! Having a will does not mean you don’t have to go through probate! A will only directs your estate where you desire; in most cases probate is still required when the only estate planning tool is a will.

A big part of estate planning is deciding whether or not you should take steps to avoid probate. Probate is not necessarily a bad thing, and depends on many factors including the size and set up of your estate and the State in which you reside. In many cases, people choose to avoid probate as it is appropriate for their estate and there are usually legal fees and a significant amount of time required to go through the probate process.

The two most common ways to avoid probate are holding title as joint tenants and holding title in the name of a trust. It is also important to note that in most cases, beneficiaries of life insurance policies, retirement accounts, and annuities, are also not subject to probate.

This is only one common mistake. Again, please make sure that you consult a competent estate planning attorney to make sure everything in your estate is in order and fits perfectly with your individual situation!

Blog Series: Five Easily Avoided Estate Planning Mistakes

Posted on March 28, 2013 by James Lange in Estate Planning.

Mistake 1 – Not having an estate plan.

Many people believe that as long as they hold title as joint tenants that this is all that is necessary. As we know, one of the major issues in many States is to avoid probate. This will obviously vary depending upon your estate, but in most cases, it is a lengthy process to go through probate and often it is wise to avoid it.

Holding title as joint tenants usually avoids probate – but only upon the first death! If, for example, a married couple holds title as joint tenants, and the husband passed away, then the wife would automatically inherit his half. However, in the event that they had three children, and the mother passed away, the children would usually have to go through probate in order to transfer the title of that asset over to them.

I know some advisors recommend their clients to put their children on as joint owners after the husband would pass away. However, this is also a potential problem due to step-up in basis considerations, and very often, liability or control issues!

Tackling the American Tax Payer Relief Act of 2012 in 5 Easy Steps!

Posted on March 15, 2013 by James Lange in Tax Law.

Our friends over at Ed Slott’s website www.irahelp.com sent us a really great little one sheet last week and we wanted to share it with you! Ed Slott is one of our favorite radio guests and one of the top IRA experts in the country. We’ll break up the information for you over the next few days, and we hope you find it as useful as we did.

Step #4:Celebrate the return of Qualified Charitable Distributions (QCDs)!

QCDs are back retroactively through 2012 and extended through 2013. This will expire at the END of 2013. QCDs allow taxpayers required to take annual distributions from their IRAs to direct those withdrawals to charitable organizations and treat them as tax-free distributions. Special rules also apply in January 2013 to make 2012 QCDs.

Tackling the American Taxpayer Relief Act in 5 Easy Steps

Posted on March 14, 2013 by James Lange in Tax Law.

Step #4: Utilize new provision for in-plan Roth conversions.

You no longer have to be eligible for a distribution from your employer plan to go through with a Roth conversion as long as the plan has a Roth option (i.e. 401(k) to Roth 401(k)). Key points to consider: 1) In-plan Roth conversions CANNOT be recharacterized; 2) You must make sure you have the money to pay tax on the conversion; 3) Roth employer plans HAVE required minimum distributions (RMDs); 4) You can utilize this provision for longer TAX-FREE growth in a Roth plan.

Tackling the American Taxpayer Relief Act of 2012 in 5 Easy Steps

Posted on March 13, 2013 by James Lange in Tax Law.

Step 3: Be aware of these other KEY tax law changes.

The $5.25 million estate/gift/GST tax exemption and portability for the estate and gift tax exemptions are PERMANENT features of the law, and the top estate tax rate has climbed from 35% to 40%. Capital gains rates are the same EXCEPT for individuals in the highest income tax bracket, who will pay a 20% tax rate. A permanent AMT patch indexed for inflation was also instituted. The 2012 AMT exemption is $78,750 (married filing jointly) and $50,600 (single).

Tackling the American Taxpayer relief Act of 2012 in 5 Easy Steps

Posted on March 12, 2013 by James Lange in Tax Law.

Step # 2 Plan with HIGHER taxes in mind.

The overall limitation on itemized deductions is back for those making $250,000 (single) and $300,000 (married filing jointly); personal exemptions will be reduced at the same limits; the payroll tax holiday expired with Social Security taxes going back to 6.2% from 4.2%; and the 3.8% healthcare surtax kicks in this year on net investment income of over $200,000 (single) and $250,000 (married filing jointly) along with a 0.9% surtax on wages at the same limits.

Tackling the American Taxpayer Relief Act of 2012 in 5 Easy Steps!

Posted on March 11, 2013 by James Lange in Tax Law.

What is the American Taxpayer Relief Act of 2012?

This act addresses the expiration of certain tax provisions centered around what are called the Bush-era tax cuts. It tackles the tax revenue side of a Congressional deficit reduction plan, was passed by the United States Congress on January 1, 2013, and was signed into law by President Barack Obama on January 2, 2013.

Step #1: Understand the IMPACT of income tax law changes.

Roughly 98% of Americans will not be impacted by changes to the income tax brackets. However, individuals who file as single and make over $400,000/year or married filing jointly that make over $450,000/year will pay a 39.6% income tax rate.

Mistake 10: Not Reviewing the Costs Before Splitting the IRA into Inherited IRAs

Posted on March 3, 2013 by James Lange in IRAs, Tax Law.

We have seen many cases where the IRA is held in the form of an annuity product, with the insurance company as the custodian. I have read many contracts that impose costs or other expenses to split the account into Inherited IRAs for multiple beneficiaries. Please review your contract carefully to make sure there is no penalty before you make this election.

In the event you find out that there is a potential penalty, at least there is usually a solution:

Retitle the account as an Inherited IRA with multiple beneficiaries, but keep it as only one IRA.
Open up a self-directed IRA at a brokerage firm with the same title.
Transfer the Inherited IRA from the insurance company in kind via a trustee-to-trustee transfer over to the new self-directed Inherited IRA account.
Liquidate the annuity product that is held by the self-directed Inherited IRA account (there should be no penalty or income taxes because the annuitant passed away and it is being paid out all at once and into another IRA).
Once the proceeds come into this new self-directed Inherited IRA, then split it into the various Inherited IRAs for each of the beneficiaries.

Sounds like a lot of work? It is, and that is the reason why you need an advisor you can trust to guide you through the process and you will most likely want to review all of your IRAs at this time in order to avoid having all these problems in the future.

Mistake 9: Waiting until the last minute to make changes on the IRA.

Posted on March 2, 2013 by James Lange in Estate Planning, IRAs, Tax Law.

Many advisors think that the IRA custodian will act promptly when dealing with these matters. However, many of these custodians are not familiar with all of these new rules and tax laws and will consider them an “exception.” They will often run these “special cases” through their legal department and it often takes a lot longer than you might think in order to finalize all of the paperwork. It often takes three months or longer for the IRA custodian to transfer the accounts and get everything retitled properly. This is especially true if you have multiple IRA accounts. Therefore, it is wise to make the decisions and final changes regarding the splitting of the IRA as soon as possible after the person passes away in order to give the IRA custodian enough time to process all this paperwork.