Sarah Stewart Legal Group, PLLC

Caring, Honest, Solutions to Your Legal Needs at Affordable Rates.

Month: August 2017

Tax Consequences of Naming a Trust Beneficiary of a Traditional IRA

By Sarah Stewart Legal Group

Trusts are estate planning documents that direct how your assets will pass after your death.  If the trust is properly funded, you heirs will be able to avoid probate when you die. Trusts can save your loved ones a lot of heart ache in the long run and allow your assets to pass smoothly from one generation to the next. Though, overall, a trust is a sound decision for your estate planning, no matter who you are, there are tax consequences of using a trust with a Traditional IRA.

People fund their Traditional IRAs with pre-tax dollars.  This means deposits made into the IRA are tax-deferred.  Tax-deferred means the IRS will take income taxes out of the disbursements when they are made.  The IRS will require Trust beneficiaries to take withdrawals once the account holder dies and taxes will be calculated accordingly.

Tax calculations for trusts that are beneficiaries of Traditional IRAs can become rather complicated.  If there is only one beneficiary, the withdrawal amount the heir is required to take will be based on the beneficiary’s life expectancy. Income taxes are generally based on the beneficiary’s tax rate.

If there is more than one beneficiary, mandatory distributions will be calculated by the oldest beneficiary’s life expectancy. This can force younger beneficiaries to take larger amounts, and pay more taxes than originally expected.

If a business, charity, or another non-person entity is named as a trust beneficiary, the IRA must be closed and distributed.  IRA disbursements are considered taxable income.  This can lead to a large tax bill for beneficiaries, depending on the size of the IRA. Tax rates will usually be calculated using the trust’s tax rate, which may also be much higher than the beneficiaries’. In 2017, the income tax rate for trusts was 39.6% after $12,400 in income.

If you have a ROTH IRA you will not have the same issues.  ROTH IRA savings are made with post-tax dollars.  This means you pay taxes on the money before you put it into the IRA.  So, ROTH IRA distributions are not taxed like Traditional IRAs.

If you have significant assets held in a Traditional IRA, you need to consider the pros and cons of naming a trust as a beneficiary of the IRA. Even if you use a trust for your estate plan, you can always name separate beneficiaries for your Traditional IRA assets and avoid the trust tax rate.  This may or may not be the best option for your situation.  Be sure to consult attorneys, tax advisors, and financial planners for your own estate planning purposes.

6 Concerns When Making Your Home Senior-Friendly

By: Sarah Stewart Legal Group

Many baby boomers are aging, causing a spike in our elderly population.  To prepare a home for an aging loved one, you must consider some unique challenges seniors face.  For example, seniors are known to fall more frequently than their younger counterparts, have mobility issues, and have more trouble with their sight.

Today, we will discuss 6 concerns when making your home senior-friendly, whether for yourself or a loved one.

(1) Bathroom Accommodations

Walking and standing on slick, wet surfaces can be difficult for anyone.  This is especially true for our elderly population.  To help seniors lower their risk of a serious fall and injury, consider adding a walk-in tub with a door that opens into the tub/shower and shower seating.

(2) Lights

Lighting can help prevent falls in the home.  Simply putting lighting in places like stairways and near steps can show people where they need to place their feet so as not to fall. Lighting also helps seniors see better in general, improving their quality of life when aging in place.

(3) Accessibility for Walkers and Wheelchairs

Seniors may need the help of a wheelchair or walker to get around.  Widening hallways can help prevent falls and allow elders greater mobility.  Also, adding ramps in place of stairs can make access easier for everyone.

(4) Heights of Cabinets and Countertops

Changing countertop and cabinet heights can help prevent falls for those with limited reach. Shelves that rotate are also an option to provide better access.  They can swing out to accommodate seniors and be returned after use.

(5) Access to Second-story

Many seniors have a hard time getting up and down stairs.  If you or your loved one have a second story, you should consider installing an elevator or chair lift. You may also want to consider moving the sleeping area for the senior to a downstairs room.

(6) More Concerns

Seniors face issues other than mobility, falls, and sight.  They may find it hard to hold or grip everyday household items like door knobs or faucets.  Consider installing new faucets and knobs that they can use.

Each senior will also have their own, unique set of limitations.  Be sure to address those needs and concerns in your loved one’s home.

 

3 Considerations When Choosing an Executor

By Sarah Stewart Legal Group

When choosing an executor, or deciding if you want to be one yourself, remember the job isn’t easy. The executor manages the estate of the deceased, usually while in the throes of their own grief.  They are responsible for taking the estate through the court system, accounting for estate assets, and filing any necessary tax returns.  The job is thankless, difficult, and can last for a long time, depending on the circumstances of the estate.

Due to these difficulties, there are some things to consider when choosing an Executor:

(1) Work Ethic

Generally speaking, the better your estate plan, the less work your Executor (or Trustee) has to do.  However, if you have a Will in your estate plan, you will need to ensure the Executor you choose has a strong work ethic.  The more assets you have, the more important this quality will be.  Probate can last for a long time, and can cause friction in even the best of families, so you need to be sure your Executor has the perseverance to handle these kinds of issues, work through them, and hang on for the ride.

(2) Focused

You need to be sure your Executor is someone who can reasonably organize all of your assets and follow your instructions for how to transfer your assets.  Your Executor must be focused and reliable.

(3) Capable

Your Executor will have to be able to get information from financial institutions.  They may also be responsible for selling and/or distributing your assets to fulfill your wishes.  You need someone who is capable of working with your financial institutions and assets. You need someone capable and trustworthy.

 

There are many ways to make the job easier for your Executor.  Avoiding probate is one of the most beneficial things you can do for your loved ones.  One way you can do this is by establishing a trust.  You can also make sure your life insurance policies, retirement accounts, bank accounts, etc. have named, and updated, beneficiaries.  Beneficiaries and joint owners receive their funds without having to go to Court for a probate.

In Oklahoma, we also use Transfer on Death Deeds for real property.  If you do not have a trust and want to make the Executor’s job as easy as possible, you should consider a Transfer on Death Deed for the real estate you own.

The Deed only becomes effective when the owner dies.  So, before death, the property can be sold or transferred in any way the owner needs without the Beneficiary’s permission.

To establish your best estate plan, contact a professional today!

Ask Your Financial Advisor These 5 Questions

By Sarah Stewart Legal Group

There are a wide variety of financial advisors to choose from nowadays.  Some are fiduciaries, required to act in your very best interests, some are not.  Some have extensive credentials and training, some just left their previous career as a bartender at your favorite club.

With so many options available, how can you choose the best financial advisor for you? Today we discuss 5 questions to ask your advisor to make sure they are the right fit for you.

(1) Are You an Investment Advisor or a Financial Planner?

There are a wide variety of Investment Advisors in the Financial Planning world, there are also Financial Planners. Investment Advisors do exactly that–they help you decide on the best investments to make, usually in stocks, bonds, and mutual funds.  Financial Planners have a wider scope.  They assist in helping with budgeting, investing, estate planning, and insurance policies.  These two worlds are not necessarily mutually exclusive.  Many of the best Investment Advisors will consider your financial plan as a whole and many Financial Planners have experience and success in choosing proper investments.

So, this is not the only consideration in this question.

If you want an Investment Advisor: Ask about their investment strategies.  Do these strategies align with your own? What types of investments does the advisor prefer? Can you understand their investment strategies? Are they a chartered financial analyst or do they have one on their team?

If you want a Financial Planner: What is the planner’s desired demographic and expertise? Identify situations unique to you and ask the financial planner about their experience in that area. Ask if they are a certified financial planner or chartered financial consultant.

(2) Do You Have Fiduciary Responsibilities?

A fiduciary must put your interests before their own when making choices about your retirement portfolio. Many financial advisors are fiduciaries. Registered investment advisors, or those who work for registered firms, are usually fiduciaries as well.  Fiduciary responsibilities may not affect all areas of your retirement portfolio with that particular advisor, so be sure to ask, and understand, where their fiduciary responsibilities end.

(3) How Are You Paid for Your Services?

Are they commission-based, fee-only, or fee-based?  Those who work on commission get a commission for recommending a particular product.  Fee-only advisors do not receive commissions.  They are paid by charging certain fees for certain services. Fee-based advisors receive commissions and fees for the products they sell.

(4) What Are Your Credentials and/or Designations?

Advisors can carry specific designations.  These are explained below:

Financial Planners:

Certified Financial Planner- CFPs must finish an educational program, pass a financial planning exam, and have extensive financial planning experience.

Chartered Financial Consultant- ChFCs must complete an educational program, pass several exams, and have extensive financial planning experience.

Investment Advisors:

Chartered Financial Analyst-CFAs must pass a rigorous educational program with a series of exams and must have experience in investment decision-making.

(5) Do You Have a Backup Plan?

What happens if the advisor leaves the business, is on vacation, or becomes disabled?  Is there someone else who will step in as your advisor? There should always be someone available as a backup contact when your advisor is unavailable.

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