Ann Wolfson Associates » Estate Planning

Naming a Trust

author3 — Thu, 08 Dec 2011 15:07:47 +0000

Why would an IRA account owner want to name a trust or non-person as their beneficiary? One type of frequently used trust is call a “see-through” trust. It creates a mechanism for the deceased to control account withdrawals, post-death. In addition a see-through trust allows the underlying beneficiary to stretch distributions over their life expectancy. Prior to naming a trust as a beneficiary an investor needs to be aware of the complex rules that govern trusts. You also must name your trust as a beneficiary on the IRA beneficiary designation form or other form acceptable to the IRA custodian.

First you would need to confirm that the trust meets IRA requirements as a “look-through” or “see-through” trust. It’s referred to as a look-through trust because one is able to look through the trust to the named beneficiaries. In order for the trust to allow for life expectancy distributions (“stretch”) all trust beneficiary must be individuals. Unless separate trusts are established for each beneficiary, i.e. the shortest life expectancy among the named beneficiaries will be used to determine the life expectancy factor that determines the amount of the required withdrawal which is then divided among the beneficiaries according to percentages designated by the trust.

Estate Taxes

author3 — Thu, 08 Dec 2011 14:25:21 +0000

IRS has finally issued the carryover basis form for large estates…Form 8939. Estates of individuals who died in 2010 can elect to pay no estate tax, but the heirs are stuck with the decedent’s tax basis for inherited assets, with a basis step-up of $1.3 million and $3 million more for surviving spouses. Executors use the 8939 to report allocations of the basis step-up to the heirs and to the Revenue Service. The agency said last month that executors have until January 17, 2012, to file the form.

Who will get my IRA assets?

author3 — Mon, 28 Mar 2011 19:58:32 +0000

In order to avoid huge headaches for your heirs, it is important that you pay attention to whom you name as your IRA beneficiary. It is important to sync what is on your beneficiary designation form with information that is spelled out in your estate documents. What is on a beneficiary designation trumps what is in your will. Be careful to make tax efficient use of your IRA assets and not to make minor children or your estate beneficiary of an IRA.

Naming a charity as the beneficiary of your IRA is a good idea. The charity will receive the assets tax free and your estate will benefit from a charitable deduction.

Roth IRAs for Estate Planning

author3 — Tue, 03 Nov 2009 19:25:51 +0000

Roth IRAs have become a great estate planning tool. Previously, conversion from a regular IRA or 401(k) was simply prohibited for taxpayers with incomes in excess of $100,000. Under new legislation passed by Congress, everyone can convert a regular IRA to a Roth IRA.

With a regular IRA, contributions are typically tax-deductible, but once you turn 70.5 years of age, you must take out a certain amount (Required Minimum Distribution) from your IRA each year. Plus, all withdrawals from your IRA are subject to income tax. In contrast, withdrawals from a Roth IRA are tax-free – which is what makes the Roth IRA great for estate planning.

With a Roth IRA, you are not required to withdraw at any age. The entirety of a Roth IRA can be left to your heirs and the assets will not be subject to income tax for your heirs, and they will not have to pay income tax on these assets.

This is a good time for many people to convert from a regular IRA to a Roth IRA as many IRAs may have lost value due to market conditions. Contributions to a Roth IRA are taxed as they are contributed. Therefore, converting your IRA at a low point can reduce your tax burden.

Since withdrawals from a Roth IRA are tax-free, you won’t need to worry about tax rates in existence at the time funds are withdrawn from a Roth IRA in the future.

Under legislation passed by Congress, taxpayers can convert existing IRA or 401(k) accounts to Roth IRAs and pay tax on the converted assets in 2011 and 2012 (50% of the tax due each year). If you have made non-deductible contributions to your IRA prior to converting it to a Roth IRA, you may not even owe tax on those contributions.

Also, you do not need to convert your entire IRA or 401(k) at once. You can convert to a Roth IRA over time. You can even undo a Roth IRA conversion without penalty until October 15th of the year in which you converted the assets.

After converting to a Roth IRA, you can contribute additional money into the Roth IRA each year, unless your income is above a certain threshold ($125,000.00 for single taxpayers and $183,000.00 for married taxpayers). If you exceed the threshold, you can contribute money to a conventional IRA and then convert those assets into your Roth IRA.

Roth IRAs have been a great tool for retirement planning, but they are now becoming a fantastic tool for estate planning. Talk to your financial professional to get all the details.

Disclosures: Roth IRA earnings withdrawn prior to the end of the five-year aging period and prior to reaching age 59.5 will be subject to a 10% early withdrawal penalty unless used to meet qualified expenses. A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59.5, death, disability, qualified first-time home purchase.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.