Sarah Stewart Legal Group, PLLC

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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.

What We Can Learn from Philip Seymour Hoffman’s Estate Mistakes

By Sarah Stewart Legal Group

We all know Philip Seymour Hoffman.  He was the lovable actor who made appearances in many movies, including Twister, The Big Lebowski, Capote, and the Hunger Games movie series.  His death in 2014 was a tragic end to an acclaimed life. Unfortunately, like many stars before and after him, Hoffman made some disastrous estate planning mistakes.  Today, we will learn from him.

Hoffman died with a $35 million estate.  His girlfriend and their 3 children survived the actor. Hoffman chose a Last Will and Testament as his estate plan for his family, due to his stigma against trusts. He was determined that his children would make their own way in the world and not become “trust fund babies.”

Hoffman’s stigma and choice led to his estate owing $12 million in taxes.  Had Hoffman chosen to marry his girlfriend, or used appropriate estate planning tools, he may have been able to save his family that $12 million.

Hoffman also demanded that certain funds be used for specific purposes for his children and their education, something that Representatives of Wills are not required to do by law. Only a trust requires the Trustee to follow your express restrictions as to when and how money will be used for heirs.

Hoffman’s choice of using a Will saddled his family with more costs, delays in receiving their funds, and allowed the proceedings to be public record. Courts take fees for every probate filed.  Attorneys take fees as well. Creditors must be notified of the death and are allowed to file claims for money.  Should the probate require additional work, such as selling property, there may be even more exceptional fees tacked on to the final bill.

Also, Hoffman’s children are still minors.  This means, given the large amount of his estate, the Court may require Guardians to be appointed to manage those funds.  The Guardians would likely be required to establish trusts for the children’s benefit so the funds are properly managed. In essence, Hoffman’s children may become “trust fund kids” regardless of his best intentions.

Hoffman’s choice left his estate open to his girlfriend’s creditors, possible new husband/boyfriend and future kids, as well as a possible second dip into the assets for a second round of estate taxes on his girlfriend’s death.  Trusts options would have allowed Hoffman to avoid all of these additional problems. Pre-planning your estate is vital for any estate, but large estates especially.

Estate planning, and trusts, provide so many different avenues to reach your planning goals.  Trusts can provide tax benefits, restrictions on how or when funds will be used, protect your heirs’ funds from their creditors and/or divorces, and other lawsuits.

Though Oklahoma has no estate tax, other states do.  If you live outside of Oklahoma, you will need to consider your state’s estate taxes as well as Federal estate taxes in your planning.

Reach out to a professional to help you plan your estate.  Don’t wind up making the same mistakes as some of our most famous and wealthiest stars.

5 Estate Planning Concerns for Single Parents

By Sarah Stewart Legal Group

For married couples, many decisions regarding who manages assets after death and makes medical decisions for their spouse can be relatively easy.  When a family involves a single parent, those questions can become more complicated.

Today we’ll discuss 5 concerns single parents should consider when making their estate plans.

(1) Who Will Take Care of the Kids?

Who would you want to take care of your minor children if you’re unable to?  If you are a divorced parent, the default will be the other parent, if that parent is living. If that parent dies before you, or for another reason is not in the children’s lives, you will need to choose someone you trust to care for your children.  If that person does not have the financial resources to take on an extra child or more, you may want to consider establishing a trust for the care of the children.  These trusts can be funded with life insurance proceeds, or any other assets you have.

(2) Are You Insured?

As a single parent, your financial responsibilities are greater than married families.  You carry the entire burden yourself.  Be sure to look into life insurance and disability policies so that you and your children can be covered financially during any times of disability or death.

(3) What Happens if You’re Incapacitated?

All estate plans should include incapacity planning.  If the children are adults, they can help make medical and financial decisions for their parent if they’re incapacitated.  If they are not adults, you will need to find a family member or close friend who can help make medical and financial decisions for you when you are unable.

(4) Do You Have a Trust?

If you have young children, a trust is the only way to ensure they will not receive their money until you are ready for them to and to control the way those assets can be managed.  If you have an ex still living and the children are minors, without a trust, the money will go directly to your ex to manage for the children as he or she sees fit.  If that situation doesn’t sit well with you, you will need a trust for your children with a manager that you trust to handle their assets correctly.

(5) Have You Updated Your Estate Plan?

Estate plans should be reviewed regularly to update beneficiary designations and ensure the documents still meet your intentions.  Transitional periods such as marriage, divorce, and when minors become adults are all very important times to review all plans and update them.  Don’t wait.  Take out your plan today and review it.

Single parents have a lot of responsibilities.  It can be easy to forget about the details of planning for your children if you die or are unable to care for them.  However, planning is even more important for single parent families, since they do not have a default person to rely on.

Reach out to professionals to help you refine your own estate plans.

6 Common Adoption Questions

By Sarah Stewart Legal Group

When you are looking to grow your family through adoption, it is an exciting, yet nervous time.  Though some people adopt through family relationships- stepparents, grandparents, etc., that is not always the case.

If you are looking to adopt, below are answers to some of the most common questions we’re asked about adoption.

(1) How Do I Adopt?

The first adoption option is through agencies.  Agency adoptions include private and public agencies.  Oklahoma’s public agency is the Department of Human Services.  Private agencies are available throughout the U.S. and Internationally.  If you are using a private agency, be sure it is a reputable one that you or someone you know is familiar with.

Another option is independent adoption. These adoptions are generally facilitated through attorneys, other professionals, or the pregnant woman herself.  Independent adoptions in Oklahoma have the greatest potential for abuse, as biological mothers can revoke consent to adoption any time before they have given consent in court to a Judge, or their rights have been legally terminated.

(2) What Children Are Available for Adoption?

Many different kinds of children are available for adoption.  They come from all different backgrounds, races, nationalities, and religions.  Children can be adopted from the U.S. or internationally.

(3) How Long Does it Take?

The longest part of the process is finding your child.  Waiting times for placements vary depending on your specific interests and qualifications.  Public agencies adopt out children whose parents’ rights have been terminated.  Since their goal is reunification with the family, that generally means they have more older children available.  Private agencies generally allow the biological parent to choose the adopting parent, so you are subject to the likes and dislikes of the parents.

Once you find your child, the legal process in Oklahoma can take 3 months to 1 year, depending on the status of the adoptive child’s parents and the likelihood the biological parents will fight the case.

(4) How Much Does it Cost?

Costs vary depending on the placement used for adopting your child.  Public agencies tend to cost less, and usually cover adoption expenses.  So, public agency adoptions range from 0 – about $2,000.

Private agencies range from $4,000 – $30,000 depending on the agency and services.

Independent adoptions are hard to pinpoint.  In Oklahoma, adoptive parents can help with some expenses of the biological mother.  The biological mother will also need to have an independent attorney hired for her.  So, you are looking at a range of about $5,000 – $30,000 or more, depending on your contract with the biological mother and court costs and attorney fees.

International adoptions can cost $8,000 – $30,000 or more.

(5) What if I’m Single?

Oklahoma laws allow single people over the age of 21 to adopt children.

(6) What Information Will I Give?

You will have to pass a background check and a home study.  Throughout this process, they will check for criminal records, learn about your family history and background, talk about your motivation and expectations for adoption, learn about your family environment and parenting style, and check your physical, employment, and health history.

 

6 Tips to Reduce Debt and Get Closer to Financial Freedom

By Sarah Stewart Legal Group

Everyone dreams of being wealthy.  Who wouldn’t love to have enough money to do whatever they want whenever they want?  Unfortunately, for the first time in American history, many Millennials, those born in the early 1980s to the mid 1990s, are making less and working harder than their parents did and are buried in far more debt.

Pay for young people in America today is far less than their parents received at their age.  Average income for young people is the lowest it has been since the 1980s.

The Baby Boomer generation graduated with very little, if any, college debt because tuition was much lower in the 1960s and 1970s.  Millennials have graduated with an average of $34,000 in student loan debt. Also, Millennials carry over their credit card debt each month, adding ridiculous amounts of interest and fees each month to their bills.

Because of these conditions, the Millennial generation is delaying buying a home, getting married, and buying cars. So, for most Millennials, paying off their debt is their dream, and a difficult one to attain at that.

If you are a Millennial ridden with debt, you need a good financial plan to get rid of your debt and start your real life.  Here are 6 tips to help you plan:

(1) Decide How Much You Owe

We can’t make a plan if we don’t know what we’re planning for.  Pull out those statements and add up your total amount of debt.

(2) Negotiate Interest Rates

Try to negotiate with your debt-holders on interest.  Just a few points in interest can make a huge difference in your overall payout.  Shop around for consolidation and refinancing options.  Just don’t fall for the “___ months, no interest” trap, unless you can reasonably pay off the debt you’re transferring in that amount of time. Otherwise, you’ll wind up paying interest on your balance, and usually, interest on all the months you supposedly didn’t have interest accruing.

(3) Budget, Budget, Budget

Budget isn’t a dirty word.  Most wealthy individuals live by budgets- and praise them.  Figure out what you can live with and what you can’t live without.  Cut out the extras and bring your monthly budget down to the bare-bones. Pay whatever extra money you can to your lowest debt until it’s paid off, then focus on your next lowest. Re-evaluate your budget each month, and be sure to stick to it! When you budget, you can also make sure you are not adding to those credit card balances each month!

(4) Build an Emergency Fund

Having an emergency fund is essential to getting your finances in check.  If an emergency happens and you don’t have the money set aside to pay for it, you derail all your hard work. Start putting a little aside each month to help with emergencies. In fact, make your emergency fund your first priority, until you have saved at least $1,000.  Then, start working on paying down that debt.

(5) Call a Professional

Accountants and other professionals can help you plan for debt reduction.  Don’t be afraid to ask for help. Or, pick up books by financial gurus- and follow their advice.

(6) Make an Estate Plan

The number one excuse I hear for not planning is “I don’t have an estate.”  This is a myth.

The reality is, everyone has an estate, no matter the size. If you don’t make a plan, the Court will decide who gets your valued things.  Estate planning also determines who you want to help you when you can’t help yourself.  Estate plans are, quite simply, for everyone.

Once you have a plan in place, the rest of the pieces will fall into place.  You may have months where you do better than others, and that’s ok.  Just continue to work on yourself and your finances and you will progress.

3 Essential Estate Planning Documents for Newly Weds and New Parents

By Sarah Stewart Legal Group

Marriage and babies are huge life-changing situations.  These happy times take up so much of our minds each and every day that the importance of planning for our families after these events can be a distant afterthought.

Estate plans are important, even though most new families do not have large estates.  There are many considerations that still need planning, such as guardianship of a child if the parents pass away, and/or ensuring spouses keep the full estate if one of them dies.

It is always important to plan these aspects of your estate and not let the Court determine them for you.  There is no better time to start planning than soon after the honeymoon or new addition arrives!

Every new family should consider the following 3 Essential Estate Planning Documents.

(1) Will or Trust

At the very least, spouses should have Wills in place outlining their wishes for their assets after their death.  Maybe surprisingly, Oklahoma law rarely allows spouses to keep all of a deceased spouse’s assets, unless a Will or Trust says they can. You also have the opportunity to name someone to care for your children if both you and your spouse die.

You will also want to decide if you want your family to go to Court if something happens to you.  If the answer is no, you will want a Trust, or other probate avoidance planning, in place to protect your family from the increased financial and emotional burden of court proceedings.

(2) Powers of Attorney

In Oklahoma, no one is automatically allowed to act for another individual.  If you have joint accounts and property, both spouses can access that information.  However, if any property is separate, the spouse cannot access it without a Power of Attorney, or other legal permission.

Also, spouses are not allowed to make Medical decisions for their incapacitated spouses under Oklahoma law, without a Medical Power of Attorney. If you or your spouse get into a car accident that leaves you unable to walk for any amount of time, you will be glad you have a Medical Power of Attorney in place.

(3) Advance Directive for Health Care

Under Oklahoma law, no one has the authority to withhold life sustaining treatment for someone who cannot make his or her own medical decisions.  The only document that authorizes withholding life-sustaining treatment is the Advance Directive for Health Care.

The Advance Directive consists of 3 parts. (1) The document takes you through several scenarios and asks you to initial for each one if you would want artificial hydration and nutrition only, no life-sustaining treatment, or everything. (2) The document then asks you to choose a health care proxy. The proxy can make medical decisions for you when you can’t, including whether or not to apply life-sustaining treatment. (3) In the third part, you state your wishes for organ and tissue donation.  You can donate for transplantation to other people, or for dental or medical research and advancement.

These documents are the bare necessities that everyone, but especially newly weds and new parents, should have for their estate plan.

An estate plan is a living organism that evolves and changes as you and your life change.  Please be sure to put a plan in place, and revise it as your life circumstances change.

6 Financial Tips for New (or Expecting) Parents

By Sarah Stewart Legal Group

Did you know the average cost of raising a child to adulthood in the U.S., according to 2015 statistics, is estimated to be $230,000?  This does not include extras like private school or college education. This is just the bare-bone basics.  Shocking, I know!

So, what are some tips experienced parents have to help new and expecting parents save and budget their money? Here are 6 tried-and-true tips!

(1) Plan for Formula and Diapers, and Then Budget More

Keep in mind the average child is not potty-trained until 3 years old.  Yep, you read that right. Three.  That’s a lot of dirty diapers to change!  And newborns are expected to have at least 6 dirty diapers a day!  So, budget for those added diaper expenses.

Also, prepare as though you will buy formula.  Most mothers intend to breastfeed as long as possible.  But, in reality, some mothers are unable to breastfeed at all, and others may find the task too difficult when returning to work.  That may be because their employer doesn’t offer an adequate space, or because they are physically drained from constant feeding and pumping.

Whatever the reason, you may need formula sooner than you think.  So budget for it from the start.

(2) Subscription Services

There are several subscription services available to new parents.  These subscriptions usually come with some great savings.  Amazon has Subscribe and Save, there’s also diapers.com, and other subscription services to explore based on your family’s needs.  Check them out!

(3) Don’t Budget too Much on Toys

The truth is, most younger children do not play with many toys, or get bored easily with their toys.  Consider establishing a 529 College plan instead of having a toy budget.  Family and friends can contribute to the fund directly.

Other great “investments” for baby’s birthday include clothes, diapers, and books.

(4) Get Involved in Your Local Community

Local libraries are a great way to get social interaction for your children for free or low cost.  Also, check out local playgroups and mom communities.  Many are easily accessible online through Facebook or Meetup.com.

(5) Don’t Forget Those Extra Weeks

We all know a year is made up of 52 weeks.  But, sometimes we forget those sneaky extra weeks.  Those extra weeks can make your child’s needs, like daycare, more expensive.  Be sure to remember and account for them in your budget.

(6) Check Out Consignment and Other Second-Hand Shops

Let’s be honest.  Most babies hardly wear their clothes before they grow out of them in the first year.  Don’t be afraid of second-hand items.  They’re great deals!

The Oklahoma City Metro has wonderful consignment options.  There are brick and mortar buildings, like Once Upon a Time and Storkland.  There are also many mom clothing exchanges throughout the year and throughout the metro, such as Just Between Friends and Moms of Multiples, just to name a few.

Keep an eye out and talk to Mom friends to find the best bargains for your baby!

The best resource for any new parent is the knowledge and support of other parents.  Reach out to your tribe, or find one for yourself, and heed their sage advice!

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