John Lane Law

When Did You Last Review Beneficiary Designation Forms? - John M. Lane Law, PLLC

“When it comes to your retirement accounts, do you know who your beneficiaries are? These types of accounts have complex distribution rules and significant tax implications for those who inherit them. This complexity is compounded, if there are errors or missing information on your beneficiary forms, as is often the case. Add to this the game-changer SECURE ACT, the largest retirement legislation that has been passed in decades—and there has never been a more important time to review your beneficiary forms.”

For many people, naming beneficiaries occurs when they first set up an account, and it’s rarely given much thought after that. The Street’s recent article entitled “Secure your IRA – Review Your Beneficiary Forms Now” says that many account holders aren’t aware of how important the beneficiary document is or what the consequences would be if the information is incorrect or is misplaced. Many people are also surprised to hear that wills don’t cover these accounts because they pass outside the will and are distributed pursuant to the beneficiary designation form.

If one of these accounts does not have a designated beneficiary, it may be paid to your estate. If so, the IRS says that the account has to be fully distributed within five years if the account owner passes before their required beginning date (April 1 of the year after they turn age 72). This may create a massive tax bill for your heirs.

Get a copy of your listed beneficiaries from every institution where you have your accounts, and don’t assume they have the correct information. Review the forms and make sure all beneficiaries are named and designated not just the primary beneficiary but secondary or contingent beneficiary. It is also important tomake certain that the form states clearly their percentage of the share and that it adds up to 100%. You should review these forms at any life change, like a marriage, divorce, birth or adoption of a child, or the death of a loved one.

Note that the SECURE Act changed the rules for anyone who dies after 2019. If you don’t heed these changes, it could result in 87% of your hard-earned money to go towards taxes. For retirement accounts that are inherited after December 31, 2019, there are new rules that necessitate review of beneficiary designations:

• The new law created multiple “classes” of beneficiaries, and each has its own set of complex distribution rules. Make sure you understand the definition of each class of beneficiary and the effect the new rules will have on your family.
• Some trusts that were named as beneficiaries of IRAs or retirement plans will no longer serve their original purpose. Ask an experienced estate planning attorney to review this.
• The stretch IRA has been eliminated for most non-spouse beneficiaries. As such, most non-spouse beneficiaries will need to “empty” the IRA or retirement account within 10 years and they can’t “stretch” out their distributions over their lifetimes. Failure to comply is a 50% penalty of the amount not distributed and taxes due.

For many, the beneficiary form is their most important estate planning document but the most overlooked.

Reference: The Street (Dec. 28, 2020) “Secure your IRA – Review Your Beneficiary Forms Now”

What are the Biggest Estate Planning Mistakes?

“Taking a few simple steps now can potentially help save your beneficiaries thousands in legal fees and taxes.”

One of the largest wealth transfers our nation has ever seen is about to occur, since in the next 25 years, roughly $68 trillion of wealth will be passed to succeeding generations. This event has unique planning opportunities for those who are prepared, and also big challenges due to the ever-changing legal and tax world of estate planning.

Fox Business’ article “5 estate planning disasters you'll want to avoid,” discusses the biggest estate planning errors to avoid.

Failing to properly name beneficiaries. This common estate planning mistake is easily overlooked, when setting up a retirement plan for the first time or when switching investment companies. A big advantage of adding a beneficiary to your account, is that the account will avoid probate and pass directly to your beneficiaries.

Any account with a properly listed beneficiary designation will override what is written in your will or revocable living trust. Therefore, you should review your investment and bank accounts to make certain that your beneficiaries are accurate and match your intentions.

Naming a minor as a beneficiary. This can be a problem, if they are still minors when you die. A minor won’t have the legal authority to take control of inheritance or investment accounts until they reach the age of 18 or 21 (depending on state law). When a minor receives an asset as a beneficiary, a court-appointed guardianship will be created to supervise and manage the assets on behalf of the minor. To avoid this mistake, you can name a guardian for the minor child in your will.

Forgetting to fund a trust. Creating a trust is the first step, but many people don’t properly fund their trust after it’s established.

Making a tax mess for your heirs. A significant advantages of passing on real estate or other highly appreciated investments or property, is that your beneficiaries receive what is known as a “step-up” in basis, so that they aren’t responsible for any income taxes on the appreciated assets when they are received. The exception is when inheriting retirement accounts, such as 401k’s and traditional IRAs. Except for a surviving spouse, inheriting a traditional IRA or 401k means that you are now responsible for the taxes owed. With the recent passage of the SECURE Act, most non-spouse beneficiaries must totally withdraw a 401k or IRA within 10 years. It is deemed to be ordinary income for beneficiaries, which could result in a huge tax bill for your heirs. To avoid this, you can convert some or all of your retirement account assets to a Roth IRA during your lifetime, which lets you to pay the conversion taxes at your current income tax rate—a rate that may be much lower than your children or grandchildren’s tax rate. When you pass away, any money that is passed inside a Roth IRA goes tax-free to your heirs.

Failing to create a comprehensive estate plan. Properly establishing your estate plan now, will care for your loved ones financially, and can also save them a lot of emotional stress after you’re gone.

Talk to an experienced estate planning attorney about planning now. It can really affect your family for generations. It is one of the best gifts that you can leave your family.

Reference: Fox Business (Nov. 12, 2020) “5 estate planning disasters you'll want to avoid”

What Happens If You Fail to Submit a Change of Beneficiary Form?

“The financial institution is obligated to distribute the CD to the person or entities that otherwise would be entitled to receive it.”

Wealth Advisor’s recent article entitled “I’m being denied an inheritance. Can they do that?” explains the situation where an individual, Peter, was given a CD/IRA by a friend named Paul.

Paul told Peter that he wanted him to have it, in case anything happened to him. Paul was married and didn’t tell his wife about this. Paul’s wife was the beneficiary of several other accounts.

Paul told Peter to sign a document before he died, and they got it notarized.

Paul died somewhat unexpectedly, and Peter took the signed and notarized beneficiary designation form to the bank to see about collecting the money.

However, the bank told Peter that there was no beneficiary designation given to them prior to Pauls’ death.

Is there anything that Peter can do?

The article explains that it’s a matter of timing, and it’s probably too late. That’s because it looks like Paul failed to submit a written beneficiary change form to the financial institution prior to his death.

As a result, the financial institution must distribute the CD to the person or entities that otherwise would be entitled to receive it.

In most states, you can choose any IRA beneficiary you want. However, in nine community property states, you are required to name your spouse as your heir. If you want to name anyone else, your spouse must give written permission. The same laws apply, if you want to change your beneficiary designation.

The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

The only way for Peter to see the money, is if he can show that Paul intended for him to receive the asset. That bank doesn’t want to be sued by another person, who claims they’re entitled to the CD.

In this situation, it’s best to speak with an experienced estate planning attorney who can examine the specifics of this type of issue.

Reference: Wealth Advisor (Nov. 24, 2020) “I’m being denied an inheritance. Can they do that?”

What Happens to My Debt When I Die? - John M. Lane Law, PLLC

“When we think about retirement planning, our focus often keys on the question of how to maintain a monthly paycheck after we stop working.”

A retirement plan isn’t set without some thought and planning on how to transfer any unspent assets to people we’d like to benefit after we die, and to whom we can entrust important financial and health care decisions in the event we’re unable to manage those affairs.

fosters.com explores this in a recent article, “What happens to your debt in estate planning?” The article reminds us that this is where estate planning is needed. An estate plan is a set of instructions that lets us designate certain individuals to act on our behalf after we die, or while we’re living but incapacitated, and provides guidance about how our assets should be distributed to beneficiaries at death, or managed for us while we are alive but unable to do so on our own.

Wills, trusts, and beneficiary forms set out our instructions as to who will receive any assets that we leave behind. Wills name an executor who is responsible for an accounting of all of our assets and liabilities at death. The executor also works with the probate court to get our creditors paid, and distribute the remaining funds to our heirs. Trusts are similar, but don’t involve oversight by the probate court. When a trust is set up to own assets during your lifetime, a successor trustee is named at your death or incapacity to manage the trust assets and then distribute them at the specified time to the named beneficiaries.

Wills and trusts don’t have any control over accounts that have a joint owner or beneficiary designation, unless the estate or trust has specifically been named as beneficiary. IRAs, 401(k)s, life insurance, annuity contracts, and brokerage and bank accounts can all be created with beneficiary designations that serve as the instructions to their custodians, regarding who is to receive them after death.

Durable power of attorney documents for both financial matters and health care are also important components of a retiree’s estate plan. Because IRAs, 401(k)s and other retirement accounts can’t be owned by a revocable trust, trustees can’t manage them for you. An agent designated in a durable power of attorney can take any actions you authorize on these sources of retirement cash flow. A durable power for health care will specify the individual you authorize to make care decisions for you and what your wishes are regarding life-sustaining treatments.

It is not unusual for those approaching retirement to either delay creating wills, trusts and power of attorney documents or not to have reviewed them for many years. Because laws and relationships change over time, it is important to review estate planning documents regularly and consult with an estate planning attorney when updates are needed.

What happens to the debt? With good planning, there hopefully is no debt. But if there is, beneficiaries generally do not have to pay the obligation, unless the debt was owned jointly with a spouse or a co-signer. Unsecured debts, like credit cards, however, do become liabilities of the estate and payment of these debts will be overseen by the probate court. The executor will need to pay them from any assets passing via the decedent’s will. An experienced estate planning attorney should work through these items with you and your heirs to take care of your affairs while you are living.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple. For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: fosters.com (November 22, 2017) “What happens to your debt in estate planning?”

Consider a Roth IRA for Estate Planning - John M. Lane Law, PLLC

“Want to reduce your beneficiary's tax burden? Consider the estate planning power of a Roth IRA.”

There’s considerable talk about potential tax reform in Washington.  It is anyone’s guess what that will look like in the end.  However, taxes must be a significant concern for those who are doing estate planning in order to pass on their assets to their loved ones. Wise estate planning means you can avoid having a big part of the money you leave your heirs devoured by income taxes. It is a way to move that money to a nontaxable form.

Motley Fool’s recent article, entitled “A Clever Way to Cut Your Heirs' Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. So long as the Roth has been open for at least five years prior to your death, the money in that account is won’t be subject to federal income taxes.

In the event you leave the money in your Roth rather than spending it in your retirement, after your death the account will be transferred to the person you designated as a beneficiary. At that point, the Roth account will be subject to the IRS's rules for inherited IRAs.

The beneficiary must then begin to take distributions based on their predicted lifespan (pursuant to the IRS’s actuarial tables). If your beneficiary doesn't simply blow the money in the account right away, the balance in the Roth will continue to grow tax-free, providing them with some untaxed income in the future.

This estate planning strategy works, if you don't spend the money in the Roth account yourself. As a result, it's important to plan and find other sources of income to finance your retirement, leaving the Roth account for your heirs.

If you didn't set up a Roth account for yourself before you retired, don't worry, you can execute a Roth conversion at any age.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple. For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Motley Fool (September 14, 2017) “A Clever Way to Cut Your Heirs' Income Taxes”

Simple Estate Planning Tools - John M. Lane Law, PLLC

“The longevity of successful retirement cannot be overstated, thus the importance of building, preserving and protecting one’s assets during retirement.”

When we look at the steps taken in our investing lives, the basics are simple. As working investors in the initial stages, the priority is accumulation and growth. Therefore, we participate in retirement plans such as IRA’s, 401-k plans, etc.

As Marco Eagle’s article, “Money Talks: Estate planning tools” explains, the next phase is the retirement stage, when the focus shifts from accumulation to preservation and maintenance of the nest egg.

Growth is a component of any retirement plan, but protecting your purchasing power during retirement is critical. You also want to generate a predictable stream of income during retirement, in order to avoid compromising your lifestyle.

The final stage of successful retirement planning is often overlooked: that’s the estate planning phase or the strategy of a succession plan to pass assets to your family. There are many estate planning tools that can be used to execute an estate plan. You can create a personal trust. Under this arrangement, your assets are transferred into a trust during your lifetime and then transferred by the trust at death. It’s important from both a tax standpoint and an allocation standpoint, regarding who receives what and how much. This is what your estate plan does for you and your family.

Work with an experienced estate and trusts attorney to establish your estate plan, so you can achieve your final objectives when passing assets to the next generation. Some individuals like the ability to exercise control with an effective plan to pass assets to their beneficiaries, without the need of trusts or probate.

There are many types of insured annuity strategies that will pass assets immediately to the beneficiaries, without the need of probate. Avoiding probate is frequently part of a strategy to make the assets available, immediately after the death certificate is issued.

Some see the foundation of their estate planning as the incorporation of life insurance. This lets the beneficiaries inherit assets, generally tax free. Avoiding a taxable event upon death is also appealing, based on both taxes as well as overall portfolio values. Talk to a professional about your situation.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple. For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Marco Eagle (June 11, 2017) “Money Talks: Estate planning tools”

If it is So Important, Why Doesn't Everyone Make a Will? - John M. Lane Law, PLLC

“Understanding what happens to you when you die may help you understand the intricacies of your estate and make planning both simpler and more effective.”

No one likes to plan for his or her death, but it’ll happen to all of us, says The Reading Eagle Business Weekly in the article “Make a will, plan for distribution of assets.”

You can pass your wealth to anyone you want, but state and/or federal taxes may be due on these transfers. The rules are also complex, and if you die without a will, the state laws of intestacy may say who gets your wealth.

Most folks make the mistake of signing their wills and life insurance policies, then putting them in files and forgetting about them. These documents and your intentions will become out-of-date. It’s not uncommon for a decedent to have been divorced for five years when they die, but the ex-spouse still inherits all of his or her assets. Why? Because the ex’s name is still in the will or is listed as the beneficiary of the life insurance policy. This happens more frequently than you might think.

Probate?

Probate versus non-probate assets is one of the most misunderstood concepts in estate planning. Probate is the process that deals with proving a will's validity by filing it in court. The will names an executor who is responsible for fulfilling its terms. The estate assets are identified and valued, then given to the individuals named in the will.

There are also non-probate assets that are transferred by operation of law. They specifically include accounts with beneficiary designations like IRAs, 401(k)s, pensions, retirement accounts, life insurance, annuities and transfer-on-death accounts. These non-probate assets supersede what’s written in the will. The beneficiary designations control them.

Do you have a will? When was the last time you reviewed it?

You should hire an experienced estate planning attorney to help structure an estate plan for both your will and beneficiary designations to allow for the efficient transfer of your assets.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Reading (PA) Eagle Business Weekly (January 17, 2017) “Make a will, plan for distribution of assets.”

Time to Review your Financial Planning - John M. Lane Law, PLLC

“There's no time like the present to take stock of your financial life.”

Business Insider’s recent article, “A financial adviser shares a 5-step checklist to complete before the end of 2016,” notes that many folks spend more time planning vacations than they do their finances or retirement. The beginning of the new year is an excellent time to take a comprehensive review of what you have—both assets and liabilities—to prepare for the year ahead and any financial milestones or challenges you may face. These can include things like marriage, a home purchase, adopting a child or retirement.

Here are some important financial steps to at the start of 2017.

Take financial inventory. Consider aggregating your accounts and identifying what you have, such as IRAs, bank accounts, and life insurance. You should take an inventory of your debt and determine how you will pay it off in 2017.

Review your estate plan. OK, it’s not that exciting, but it’s important. Don’t wait until this time next year, because tragedy can strike at any time. If you fail to plan properly, and something unfortunate happens, your family may be left unprepared. It's critical to have control over what will happen to everything that you leave behind.

Update your beneficiary forms. This is a task that should be reviewed periodically—especially if you've been married or divorced, had children or retired in recent years. A designated beneficiary on an insurance policy or an IRA has precedence over a will or a trust. As a result, it's important to make adjustments after major life changes.

Make some smart tax moves. You should know how the taxes work on your 401(k)s and IRAs, so take a look to be certain you're saving effectively. The maximum annual contribution to a 401(k) is $18,000 or $24,000 if you're over 50. Therefore, if you've got a holiday bonus, that’s the perfect reason to add to your retirement accounts.

You should also remember that you can gift as much as $14,000 per person annually to as many people as you'd like without a gift tax liability. In addition, with any tax planning for retirement, you might think about converting your retirement money through a Roth IRA conversion ladder. Money transferred from a traditional IRA to a Roth is tax- and penalty-free after paying taxes on the conversion.

Evaluate your path to retirement. Retirement planning is important at every stage of life, so be pro-active. If you create a plan, it can hold you accountable. It is important to speak with a qualified estate planning attorney. Don’t just “set it and forget it.” Stay on top of issues and continually monitor the situation.

If retirement is in the near future, or if you're planning to retire early, start to have discussions about identifying guaranteed income, social security, your pension options, and how to utilize any or all of them into your overall income plan, along with the tax consequences.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Business Insider (December 9, 2016) “A financial adviser shares a 5-step checklist to complete before the end of 2016”

Make a Plan to Make a Plan for Retirement - John M. Lane Law, PLLC

“You thought you’d planned for everything, but these things might still sneak up on you in retirement.”

Everyone’s busy with families, careers, home-buying, and then one day, college for the kids. It shouldn’t be too surprising that retirement planning takes a back seat, says The Washington Post in a recent article, “It takes a lot of work to be ready to retire. Don’t forget these things.”

While there are some who don’t begin considering retirement until they reach their 50s, it’s not too late to get started on your retirement planning. But a late start may mean you may have to face some unfortunate realities.

Retirement can be overwhelming. Let’s look at those things some forget to plan or didn’t even realize they needed to plan. First, some people aren’t prepared emotionally to retire. You need to determine how you will spend your time and what it might cost.

Medicare. You must enroll in Medicare at 65, but if you delay until 66, you’ll have to take the initiative because it’s not automatic. If you’re late, there’s a 10% penalty for every 12 months you snooze. If you wait 24 months, there’s a 20% permanent penalty because you forgot to re-enroll. Enrollment is three months before to three months after your 65^th birthday. If you delay taking Social Security, you’ll have to enroll in Medicare on your own.

Health-Care Costs. Studies show that health care will cost about $250,000 for a couple in retirement, or about $5,000 per year per person. People frequently underestimate health-care costs in retirement—they forget prescription drug and long-term care costs—which can use up a lot of money. The same is true of dental expenses, and Medicare doesn’t cover dental.

Major Purchases and Repairs. Some fail to account for major purchases, such as home repair and upkeep. Many retirees are caught short on the occasional large purchase, so examine your budget annually to be sure you consider things that come up quarterly or semiannually. Remember that life events like weddings, graduations, and spoiling the grandkids can be major unanticipated costs.

Planning for a Long Life. This is very important because if you will live to age 90, will your money last? There are many things to consider when you think about 25 years in retirement, like long-term care.

Estate Planning. Estate plans aren’t just for the wealthy, and if you’re not pro-active, all those decisions will be made for you by the state. Create a will, be certain that your beneficiaries are correct and up to date, and make sure you have a power of attorney and health-care directive.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: The Washington Post (October 15, 2016) “It takes a lot of work to be ready to retire. Don’t forget these things.”

Check This Checklist and See What You Need to Do for Your Estate Plan - John M. Lane Law, PLLC

“No matter your age, this estate planning checklist will help you get started on the process.”

People tend to put off estate planning. As a result, they risk dying without leaving their financial affairs in order and handing their heirs a host of potentially significant problems.

The Business Times recently published an article entitled “Use this checklist to get started on your estate planning.” The article discusses some pointers for those averse to buckling down and creating an estate plan.

Create a will if you don’t have one. A 2015 survey found that 54% of Americans ages 55 to 64 and about 70% of Americans ages 45 to 54 don’t have a will in place. A legally valid will could save your heirs from expensive problems with probate.

Add related documents. Depending on your estate planning needs, you may need a trust, durable financial power of attorney and medical powers of attorney, as well as a living will.

Review beneficiary designations. Check your documents and verify the designated beneficiaries. These take priority over the provisions of wills when it comes to retirement accounts, life insurance, and other non-probate assets.

Make a list of assets and debts. Give your heirs an estate planning organizer so that they can reference it if you pass away. List your real property and personal property assets, as well as real estate you own and its value. Also list personal property items that have a monetary worth. You can also list your bank and brokerage accounts, retirement accounts, other investments and insurance policies. Finally, make a list of your credit card debts, mortgage, home equity line of credit, and any consumer loans.

Consider making gifts to reduce the size of your taxable estate. The lifetime individual federal gift, estate, and generation-skipping tax exclusion amount is unified and is set at $5.45 million for this year. So a married couple can transfer up to $10.9 million tax-free.

Reduce, communicate and make wise decisions. Consolidate your IRAs and bank accounts to shorten your list, eliminate statements, reduce paperwork and avoid fees. Tell your heirs which causes and charities you value and select a reliable executor.

Work with an estate planning attorney. Do-it-yourself estate planning is not recommended because there are numerous financial, legal and emotional issues and pitfalls to avoid.

Ok, you’re not a multimillionaire yet. But if you own a business, have a blended family, have a child with special needs, are concerned about dementia or want to pave a smooth road for the loved ones left behind, use this checklist to get going now.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: The Business Times (Sept. 20, 2016) “Use this checklist to get started on your estate planning”