Law Office of Frank Bruno, Jr.

Category: Estate Planning

  • Why You—and Everyone—Needs an Estate Plan

    Why You—and Everyone—Needs an Estate Plan

    At its essence, estate planning is any decision you make concerning your property if you die, or if you become incapacitated. There are a number of things to keep in mind when creating an estate plan, says KTUU in the article “Estate planning dos and don’ts.”

    The first task is not what most people think. It’s very basic: making a list of all of your assets and how they are titled. Remember, the estate plan is dealing with the distribution of your assets—so you have to first know what those assets are. If you are old enough to have lived through the sale of several different financial institutions, do you know where your accounts are? Not everyone does!

    Next, you need to be clear on how the assets are titled. If they are joint with a spouse, Payable on Death (POD) or Transfer on Death (TOD), jointly with a child, or owned by a trust, they may be treated differently in your estate plan, than if you owned them outright.

    Roughly fifty percent of all adults don’t make a plan for their estate. That becomes a huge headache for their loved ones. If you don’t have an estate plan, your property will be distributed according to the laws of your state. What you do or don’t want to have happen to your property won’t matter, and in some instances, your family may be passed over for a long-lost sibling. It’s a risk.

    In addition, if you don’t have an estate plan, chances are you haven’t done any tax planning. Some states have inheritance taxes, others have estate taxes, and some have both. Even if your estate’s value doesn’t come anywhere close to the very high federal estate tax level ($11.4 million per person for 2019), your heirs could inherit far less, if state and inheritance taxes take a bite out of the assets.

    For a blended family, there are a number of rules in different states that divide your assets. In Alaska, for instance, if some of the children of one spouse are not the children of the other spouse, there is a statutory formula that depends on how many children there are and which of them are living. Different percentages of money are awarded to the children, which becomes complicated.

    Why You—and Everyone—Needs an Estate Plan. Another reason to have an estate plan has to do with incapacity. This is perhaps harder to discuss than death for some families. Estate planning includes preparing for what the individual would want to happen, if they were injured or too sick to convey their wishes to others. Decisions about health care treatments and end-of-life care are documented with a Living Will (sometimes called an Advanced Care Directive), so your loved ones are not left wondering what you would have wanted and hoping that they got it right.

    One last point about an estate plan: be sure to check beneficiary designations while you are doing your estate plan. If you own retirement accounts, life insurance policies, or other assets with named beneficiaries, the assets will pass directly to the named beneficiary, regardless of the instructions in your will. If you opened an IRA when you had one child and have had other children since then, make sure to include all of those children and the proportion of their shares. There may be tax implications, if only one child receives the assets, and there may also be family fights if assets are not distributed equally.

    Reference:

    KTUU (August 14, 2019) “Estate planning dos and don’ts”

  • Blended Families Need More Thoughtful Estate Plans

    Blended Families Need More Thoughtful Estate Plans

    Estate planning for blended families is like playing chess in three dimensions: even those who are very good at chess can struggle with so many moving parts in so many dimensions. Preparing an estate plan requires careful consideration of family dynamics, and those are multiplied in blended families. This is another reason why estate plans need to be tailored for each family’s circumstances, as described in the article “Blended families have unique considerations in estate planning” from The News Enterprise.

    The last will and testament is often considered the key document in an estate plan. But while the will is very important, it has certain limitations and a few commonly used estate planning strategies can result in unpleasant endings, if this is the only document used.

    Spouses often leave everything to each other as the primary beneficiary on death, with all of their children as contingent beneficiaries. This is based on the assumption that the second spouse will remain in the family home, then will distribute any proceeds equally between the children, if and when they move or die. However, the will can be changed at any time before death, as long as the person making the will has mental capacity. If when the first spouse dies, the relationship with the surviving children is not strong, it is possible that the surviving spouse may have their will changed.

    If stepchildren don’t have a strong connection with the surviving spouse, which occurs frequently when the second marriage occurs after the children are adults, things can go wrong. Their mutual grief at the passing of the first spouse does not always draw stepchildren and stepparents together. Often, it divides them.

    The couple may also select different successor beneficiaries. The husband may name his wife first, then only his children in his will, while the wife may name her husband and then her children in her will. This creates a “survival race.” Winner takes all. The surviving spouse receives the property and the children of the spouse who passed won’t know when or if they will receive any assets.

    Some couples plan on using trusts for property distribution upon death. This can be more successful, if planned properly. It can also be just as bad as a will.

    Trust provisions can be categorized according to the level of control the surviving spouse has after the death of the first spouse. A trust can be structured to lock down half of the trust assets on the death of the first spouse. The surviving spouse remains as a beneficiary but does not have the ability to change the ultimate distribution of the decedent’s portion. This allows the survivor the financial support they need, giving flexibility for the survivor to change their beneficiaries for their remaining share.

    Not all blended families actually “blend,” but for those who do, a candid discussion with all, possibly in the office of the estate planning attorney, to plan for the future, is one way to ensure that the family remains a family, when both parents are gone.

    Reference:

    The News Enterprise (November 4, 2019) “Blended families have unique considerations in estate planning”

  • Can I Correct an IRA RMD Mistake?

    Can I Correct an IRA RMD Mistake?

    It’s not uncommon for an individual to inaccurately calculate their required minimum distribution (RMD) for their account. Maybe you forgot that your brokerage firm divided the account in two and they didn’t tell you. This mistake may result in a person failing to withdraw the mandatory amount from an IRA.

    What can a person do at this point? If the mistake was caused by an oversight at the brokerage firm, can you avoid the 50% penalty, if they admit the error in a letter to the IRS?

    Kiplinger’s recent article, “How to Correct a Mistake on Your RMDs from IRAs” advises that you don’t need to send the IRS a letter from the brokerage firm, but you do need to take some action immediately to ask the IRS if it will waive the penalty.

    You need to first figure out the exact amount you should’ve withdrawn as your RMD and withdraw the money right away, if you haven’t already. You should then file a separate Form 5329 immediately for each year’s RMD you missed.

    You should fill in lines 52 and 53 with the amount you should have withdrawn, then write “RC.” This means “reasonable cause.” Also write in the amount of the penalty you want waived in parentheses on the dotted line next to line 54. You should include a brief note that says the RMD was omitted by the brokerage company and was withdrawn immediately upon discovery. Keep it brief—don’t go into all the details.

    You shouldn’t send any penalty money, unless the IRS denies your request for a penalty waiver.

    Denials are pretty rare, especially for someone who withdrew the money as soon as she realized the mistake and filed Form 5329 proactively with reasonable cause.

    Retain the letter or any communication in your files from the broker saying that the firm made a mistake, but don’t send it to the IRS.

    Can I Correct an IRA RMD Mistake? Yes you can. You can review the Instructions for Form 5329 for more information about the procedure.

    Reference: