Planning For The End: Why Your Will Is Important by Matt Schwartz

 

Image used for Pay Taxes Later blog. Blog post written by Matt Schwartz

Why Have a Will?

Perhaps one of the most common answers to the above question is that a responsible adult should have a Will. However, the benefits of a Will go far beyond satisfying an internal sense of responsibility to your family and loved ones.

Some of the benefits of a Will are expected. Perhaps the most common benefits that come to mind are the opportunity to state who should be in charge of the distribution of your probate assets (it is important to remember that Wills do not govern the distribution of joint assets or assets such as retirement plans and life insurance that pass by beneficiary designation) and how should those assets be distributed to a beneficiary (outright or in trust). Beyond those common benefits are the opportunities to address subtleties such as which beneficiaries should pay the inheritance taxes due on the transfer of your assets. Should those taxes be paid by the residuary beneficiary even if assets are being distributed as specific bequests to friends whom will likely pay inheritance tax at a higher rate than the residuary beneficiary (that is at least commonly the case in Pennsylvania). Additional considerations include determining which assets should be distributed to which beneficiaries. For example, a Roth IRA should never be distributed to a charity and it is far better to use a traditional IRA or retirement plan to fund a charitable bequest than funding that charitable bequest with after-tax assets under a Will.

Preparing or Updating a Will Should Give You Peace of Mind

Despite the above stated positive benefits of a Will, I believe the best benefits of preparing a Will are organizing your affairs. The exercise of preparing a Will should force you to do a formal inventory of your assets and cause you to ask questions such as Am I on track for retirement?, Will my assets last for my lifetime?, How do I want to be remembered? Would my loved ones be able to continue my investment philosophy if I pass away? Could my loved ones find all of my important papers and, if they can, would they know whom to contact first to take care of the administration of my estate?
When we complete estate plans at our office, our goal is not nearly to document your wishes but rather to leave detailed instructions to leave your family prepared to handle the distribution of your assets and to give you peace of mind. Why go through the hassle of meeting with an attorney, sharing some of your most private thoughts and thinking about your mortality if you cannot have true peace of mind as an outcome?

Call me to discuss, revisit, or develop your Will at 412-521-2732 x211 or:

Contact Matt Schwartz, Attorney at the Lange Financial Group for Estate Planning needs including Wills.

Best wishes,

Matt Schwartz

What Happens If You Don’t Have A Will?

New Blog by Lead Estate Attorney Matt Schwartz of the Lange Financial Group

Other than getting a tooth pulled, most people would tell you that there are few things that are as unpleasant to them as talking about their future death and wills. Death is an emotional and difficult topic for many people because it forces them to assess their legacy and their life purpose. So what happens if you don’t have a will?

How Are My Assets Distributed at My Death?

To help clients get over their discomfort of discussing their mortality, I explain to clients what will happen if they do not have a Will. Certain assets such as retirement accounts, life insurance policies and joint accounts pass to the successor owner irrespective of whether you have a Will. All other assets that do not have a joint owner or a beneficiary designation would be distributed in accordance with Pennsylvania intestacy law if you pass away without a Will. Examples of such assets are individually owned real estate and individual financial accounts without beneficiary designations.

Who Controls the Distribution of my Assets? Advice from an Estate Attorney

If you are married, it is quite possible that all of your assets are either jointly owned with your spouse or will pass to your spouse by beneficiary designation. If so, it will not be necessary to use a Will to transfer any assets at the first spouse’s death because all of the assets will pass to the surviving spouse independent of any Will. However, if assets are individually owned without a beneficiary designation, then the distribution of those assets will not be permitted until an administrator is appointed for the estate. Although the initial choice for administrator would be the spouse, how will the children decide who should be administrator if your spouse predeceases you or does not have capacity to serve as administrator? Will a majority of the children agree on one of them to serve as administrator?

Who Receives My Assets if I Don’t Have a Will?

Finally, how are individually owned assets without a beneficiary designation distributed if you do not have a Will? Contrary to what most people think, the individually owned assets will be split at the first spouse’s death between the spouse and the children. The surviving spouse is already upset enough about losing their spouse. Finding out that they might not inherit all of the assets of their spouse (this result can be common with families that own real estate or closely held businesses) only adds insult to injury for these surviving spouses.

In future blog articles, we will focus on positive benefits of having a Will. Please do not hesitate to send me an email or give me a call at 412-521-2732 x211 if you would like to have a discussion to revisit your current Will or to develop an initial Will.

Contact Matt Schwartz, Attorney at the Lange Financial Group for Estate Planning needs including Wills.

The Incredible Tax Advantage of Young Beneficiaries

Let’s Talk About Your Kids:
The Advantage of Estate Planning with Young Beneficiaries

The Incredible Tax Advantage of Young Beneficiaries

Let’s talk about your beneficiaries, your kids and grand kids.

In the second video in this series, we learned that estate planning that leaves retirement assets directly to children and grandchildren offers extraordinary tax advantages to your family.  The basic premise being that a young beneficiary has a long life-expectancy, and sustaining money in the tax deferred environment for an extended period allows for the most growth. At least this is how things work under the current law.

I think we can agree that, in drafting estate planning documents, the primary concern for most couples is to provide for the surviving spouse. As we have discussed, transferring assets to a spouse is a fairly straightforward process and does have some tax advantages. Then, they hope that when they are both gone, there will be something left for their kids, and then for their grandchildren.  But, I am suggesting that, depending on family circumstances, it might be smart to leave money to kids or grandkids at the first death.

Let’s say that after you die, your spouse is in good health and has more money than he or she will ever need.  Under those circumstances, you have met our first criteria for an estate plan:  providing for the surviving spouse.  In this case, leaving at least a portion of your IRA to your children is perhaps a viable and tax-savvy option.  With their longer life expectancy, they will have lower required minimum distributions which means more of your money will continue to grow tax-deferred.  Flexible estate planning at its finest! It’s a winning scenario, especially if you look at the family as a whole with the idea of establishing a legacy.

If we take it one step further with your beneficiaries.

It’s even better, tax-wise, to name your grandchildren.  Imagine the advantages of minimizing tax-free distributions from an inherited Roth account over a long lifetime! If you scroll up to video two in the series, you can watch me run the numbers for just that scenario.  It’s a game-changing strategy.

We cannot over-stress, however, that naming minor children or grandchildren as beneficiaries will also require some additional estate planning to protect them from themselves—no Ferrari at 21 for you my grandson—and, potentially, creditors.  We recommend that all minors’ shares are held in well-drafted trusts.  Additionally, it is critical that the trust meets five specific conditions to qualify as a designated beneficiary of an IRA or a Roth IRA (you can find reference to the five conditions in my book, Retire Secure! on Page 307, and you can download a copy of the book at www.paytaxeslater.com/books. Under current law, a well-drafted trust will allow them to stretch an inherited IRA or Roth IRA over their lifetime. If the trust doesn’t meet all five of the conditions, then the trust will not qualify as a beneficiary and income taxes will be accelerated. Without attention to the details, it could go from an estate planning dream to a nightmare.

So, let’s pull it all together.

Even if you have specific bequests that you want to see honored—a gift to a charity or a cause or a family friend—I suspect that it is still safe to say that your primary beneficiaries will be your surviving spouse, your children, and your grandchildren.  That being the case, stay tuned to learn why Lange’s Cascading Beneficiary Plan is probably the best estate planning solution for you.

Until next time!

-Jim

 

P.S. If you want to do a little advanced study on this topic before the next post and video, go to https://paytaxeslater.com/estate-planning/.

Beyond “I Love You” Wills: Tax Advantaged Estate Planning With Lange’s Cascading Beneficiary Plan

Estate Planning Goals:
What Do Most Families Want?

What do most couples want from estate planning and their Wills?

Welcome back for the fourth video blog post in my series on Lange’s Cascading Beneficiary Plan: the best estate plan for married couples.

So, let’s talk a minute about estate planning goals in general and forget about taxes.  What do most couples want from estate planning?  They want to be sure that, no matter what, the surviving spouse will be safe and secure.  If they have kids and grandkids, they want to take care of them too.  This typically leads to what I call an I Love You will.  And truly, it’s a great place to start.  Most I Love You wills are simple and to the point:  Husband leaves everything to his wife.  Wife leaves everything to her husband.  Once they both die, the remainder goes to their children in equal shares.  And if, for some reason one or more of the children predecease the parents, that child’s share would go to his or her own children—hopefully in well-drafted trusts.  As I said, I am a huge fan of I Love You wills.  But, returning to the topic of taxes…we can optimize estate planning when we start thinking of the tax consequences for individual family members, and how that affects the family as a whole.

What’s great about the I Love You Wills

Okay, so what is great about the I Love You wills that name the spouse as the primary beneficiary and then the children equally?

  1. It provides for the surviving spouse. As such, it meets our primary objective.
  2. When you direct your assets to your spouse at death, there is no income tax on the transfer of your IRA or other retirement plans. With a tax-deferred plan, your spouse will continue taking required minimum distributions (RMD).  If a Roth IRA passes to the surviving spouse, there are no RMDs, and it can continue growing tax-free for the rest of his or her life.
  3. With the death of the second spouse, what’s left goes to the children.

That covers the basics.

What can be improved from with I Love You Wills?

Now, let’s look at what we might improve from the basic I Love You estate planning.  If you remember in the second video of this series, we looked at the nitty-gritty of what happens to your IRA after death.  Assuming the IRA distribution rules currently in place, you learned that a child’s required minimum distribution of an inherited IRA would be much lower than the required minimum distribution of the IRA for the spouse.  So, if financial circumstances permit, passing the IRA to a child defers taxes for a much longer period.  And, if we are looking the big tax-picture estate planning for the whole family, that is an advantageous tax strategy.  The tax advantage only improves if a grandchild is the beneficiary.  We can implement this tax-advantaged strategy if the disclaimers associated with Lange’s Cascading Beneficiary Plan are in place.

The critical component with this type of estate planning is flexibility.  Having options that can maximize the tax benefits to the family based on the financial/life circumstances at the time of the first death is both comforting and smart.   Lange’s Cascading Beneficiary Plan takes all the benefits of the I Love You will and adds flexibility and potentially enormous tax advantages.

In our next video blog, we will look at some of the best ways to plan in the face of uncertainty.

See you soon!

Jim

P.S. If you want to do a little advanced study on this topic before the next post and video, go to https://paytaxeslater.com/estate-planning/.

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.

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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What the Scaife Case Teaches Us: Using a Bank or a Lawyer as a Trustee doesn’t Guarantee Proper Fiduciary Care

5MU0KKFTThe late Richard Mellon Scaife. The trust at the center of the litigation was created in 1935 by his mother, Sarah Mellon Scaife. (Photo Courtesy of Tony Tye/Post-Gazette)

http://www.post-gazette.com/local/2015/01/15/Scaife-children/stories/201501150289

On January 15, 2015 the Pittsburgh Post-Gazette ran an article (Scaife children seek details on drained trust) outlining an ongoing court case between the children of Richard Mellon Scaife and the trustees of their grandmother’s trust. The trust was set up in 1935 by the children’s grandmother for the benefit of Richard Mellon Scaife, but apparently language in the document also suggested that some of the principal should be saved for R.M. Scaife’s children. When Mr. Scaife died in July of 2014, Jeannie Scaife and David N. Scaife found that the fund that had contained $210 million dollars in 2005 was now completely drained. They allege that the trustees for the account allowed and even encouraged inappropriate spending from the fund by the late Mr. Scaife.

This case offers a vivid illustration of a point that Pittsburgh CPA, James Lange, has been sharing with his clients for more than 30 years: Trusts are wonderful vehicles to protect and provide for your family for generations, but choosing the right trustees makes all the difference. Creating trusts with banks and lawyers as trustees, even after paying the enormous fees, doesn’t guarantee appropriate fiduciary care.

Lange insists that the moral of the story, no matter how the case turns out, is that most people, even billionaires, will usually be better off with reliable family members as trustees. The family members can hire accountants, attorneys, and money managers to help them manage and maintain the trust. If those people aren’t appropriate or fulfilling their duties properly they can be fired, but control is retained by the family instead of bankers and lawyers whose first duty might not be to your family’s legacy.

If you need help with your financial planning contact us at (800) 387-1129 or (412) 521-2732.

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7 Good Reasons to Change Your Will

1. You Get Married

Your new spouse doesn’t automatically become your chief heir. Most states give a spouse one-third or one-half of an estate. If you don’t have any children, your parents or siblings would get the rest. To leave all your property to your spouse, you’ll need a will. You cannot disinherit a spouse without his or her consent.

If you are living with someone but are not married and you want your significant other to inherit any of your property, you need a will.

2. You Become a Parent

Obviously, the big question is how your children will be cared for if both you and your spouse die. Now you definitely need a will to name a guardian for your children, as discussed earlier.

Consider using trusts, perhaps in your will, to handle assets that would go to your children. Execute a durable power of attorney naming your spouse or someone else to act for you in financial matters when you can’t. Durable power remains effective even if you become mentally unable to handle your own affairs.

3. You Approach Middle Age

Your assets are growing, so tax planning could save your heirs thousands in federal estate taxes. The time to act is when you and your spouse have a combined net worth, including house, retirement plans, and insurance proceeds, that approaches the amount vulnerable to the federal estate tax. You can give an unlimited amount to your spouse tax-free, by designating it in your will or by owning all assets jointly, for example. But with a little more planning, a married couple can leave twice the amount of the estate-tax exemption–up to $7 million after the second spouse dies, assuming that Congress reinstates the estate tax that lapsed at the end of 2009 and continues the $3.5 million exemption in effect at that time.

Some in Congress would like to boost the estate tax threshold to $5 million and reduce the tax rate to 35%. If they have their way, a married couple could exempt up to $10 million from estate taxes.

Update your will to reflect family births, deaths, separations, or divorces. Review guardian, trustee, and personal-representative appointments. Reevaluate the nature of specific gifts to people or groups. And recalculate how much life insurance you need.

 4. You Get Divorced

Review absolutely everything. The people in your life are changing. So must your estate plan. You need a new will altogether because in most states a divorce automatically revokes the provisions of a will that apply to a former spouse. In some states a divorce revokes the entire will.

You’ll want to set up trusts to control the assets you plan to leave your children. And revise any living trusts to remove your former spouse as a beneficiary or trustee. Do likewise with a durable power of attorney or a living will. Plus, unless restricted by a divorce decree, change the beneficiaries on your life insurance, pensions, and IRA.

5. You Remarry

You and your new spouse may have to plan for families from prior marriages and for children you have together. Consider a prenuptial agreement, should you want to keep assets separate and nullify your inheritance rights to each other’s estates.

You’ll want to provide for your new spouse and still be certain your children are taken care of. To do this, talk to an estate-planning lawyer about a qualified terminable interest property trust — QTIP, for short. This trust can be set up in a will to give your spouse the income from the trust property and some rights to principal. But when he or she dies, the assets go to beneficiaries you have chosen.

6. You Retire or Move to Another State

If you retire to another state (or any time you move to a new state, for that matter), have your estate-planning documents reviewed in light of that state’s laws and your current needs.

Durable powers of attorney become even more important. For example, if you are stricken with Alzheimer’s disease, you may become unable to give the required consent for financial transactions. Life insurance coverage may not be needed anymore. But if your estate faces an estate-tax liability or if your spouse is dependent on retirement income that will end with your death, consider keeping the coverage.

7. Your Spouse Dies

This loss can leave you emotionally vulnerable to financial mistakes. For at least several months, avoid selling your house or making other drastic changes.

Seek expert advice. There may be tax benefits to disclaiming some of your inheritance in favor of alternate beneficiaries, such as your children, if your spouse’s estate is subject to the federal estate tax and you have enough assets of your own, including liquid assets.

You’ll need to get a new will and, if needed, a revocable living trust. Execute a new durable power of attorney and a living will (which expresses your wishes in case of an illness that leaves you permanently incapacitated). Put these in a safe place, and tell people who need to know where they are.