Probate Process for Your Estate

legacyProbate is simply the Latin word for prove, which means that the estate probate process is the process by which your will is brought before a court to prove that it is a valid will. The courts charged with this responsibility are generally known as probate courts, which may actually supervise the administration or settlement of your estate.

The probate process is governed by state statutes that are intended to accomplish three primary objectives:

  1. To preserve estate assets.
  2. To protect the rights of creditors in the payment of their claims before the estate is distributed to the heirs.
  3. To assure that the heirs receive their inheritance in accordance with the terms of the estate owner’s will.

Once the estate’s personal representative (executor or administrator if the estate owner died without naming a personal representative) is approved by the probate court and posts any bond that is required, the probate process generally proceeds as follows:

  • The personal representative must “prove up” the will — prove that it is a valid will signed by the estate owner who was competent and not under duress or influence at the time of signing.
  • Notice must be given by the personal representative to all creditors to make prompt claim for any money owned to them by the estate.
  • The personal representative must prepare and file an inventory and appraisal of estate assets.
  •  The personal representative must manage and liquidate estate assets as appropriate to pay all debts, fees and taxes owed by the estate.
  • Finally, the remaining estate must be distributed to the heirs in accordance with the estate owner’s will (or the state laws of intestacy if there was no will).

It is not uncommon for the probate process to require a year or more and considerable expense before the estate is finally settled.

Proper planning, however, can serve to minimize the impact of the probate process on your estate and heirs.

Remember Retirement When You Change Jobs

Lifestyle in Retirement

WHEN YOU CHANGE JOBS

You May Have an Important Decision to Make…

What to do with your money in an employer-sponsored retirement plan, such as a 401(k) plan. Since these funds were originally intended to help provide financial security during retirement, you need to carefully evaluate which of the following options will best ensure that these assets remain available to contribute to a financially-secure retirement.

Take the Funds:

You can withdraw the funds in a lump sum and do what you please with them. This is, however, rarely a good idea unless you need the funds for an emergency. Consider:

  • A mandatory 20% federal income tax withholding will be subtracted from the lump sum you receive.
  • You may have to pay additional federal (and possibly state) income tax on the lump sum distribution, depending on your tax bracket (and the distribution may put you in a higher bracket).
  • Unless one of the exceptions is met, you may also have to pay a 10% premature distribution tax in addition to regular income tax.
  • The funds will no longer benefit from the tax-deferred growth of a qualified retirement plan.

Leave the Funds:

You can leave the funds in your previous employer’s retirement plan, where they will continue to grow on a tax-deferred basis. If you’re satisfied with the investment performance/options available, this may be a good alternative. Leaving the funds temporarily while you explore the various options open to you may also be a good alternative. (Note: If your vested balance in the retirement plan is $5,000 or less, you may be required to take a lump-sum distribution.)

Roll the Funds Over:

You can take the funds from the plan and roll them over, either to your new employer’s retirement plan (assuming the plan accepts rollovers) or to a traditional IRA, where you have more control over investment decisions. This approach offers the advantages of preserving the funds for use in retirement, while enabling them to continue to grow on a tax-deferred basis.

Why Taking a Lump-Sum Distribution May Be a Bad Idea:

While a lump-sum distribution can be tempting, it can also cost you thousands of dollars in taxes, penalties and lost growth opportunities…money that will not be available for future use in retirement.

Please contact my office if you would like additional information on rolling funds over from a previous employer’s retirement plan.

The purpose of this newsletter is to provide information of general interest to our clients, potential clients and other professionals. The information provided is general in nature and should not be considered complete information on any product or concept described.

by The Virtual Assistant; © 2012 VSA, LP

Taxable VS. Tax Deferred Investments

Savers PrisonHow much would you have to earn each year from a taxable investment in order to equal earnings on a tax-deferred investment? This chart illustrates the potential benefits of a tax-deferred investment vs. a taxable investment.

Annual Tax-Deferred Yield Federal Income Tax Bracket:
10% 15% 25% 28% 33% 35%
Annual Taxable Equivalent Yield
3% 3.33% 3.53% 4.00% 4.17% 4.48% 4.62%
3.5% 3.89% 4.12% 4.67% 4.86% 5.22% 5.38%
4% 4.44% 4.71% 5.33% 5.56% 5.97% 6.15%
4.5% 5.00% 5.29% 6.00% 6.25% 6.72% 6.92%
5% 5.56% 5.88% 6.67% 6.94% 7.46% 7.69%
5.5% 6.11% 6.47% 7.33% 7.64% 8.21% 8.46%
6% 6.67% 7.06% 8.00% 8.33% 8.96% 9.23%
6.5% 7.22% 7.65% 8.67% 9.03% 9.70% 10.00%
7% 7.78% 8.24% 9.33% 9.72% 10.45% 10.77%
7.5% 8.33% 8.82% 10.00% 10.42% 11.19% 11.54%
8% 8.89% 9.41% 10.67% 11.11% 11.94% 12.31%
8.5% 9.44% 10.00% 11.33% 11.81% 12.69% 13.08%
9% 10.00% 10.59% 12.00% 12.50% 13.43% 13.85%
9.5% 10.56% 11.18% 12.67% 13.19% 14.18% 14.62%
10% 11.11% 11.76% 13.33% 13.89% 14.93% 15.38%

This chart illustrates the potential benefits of a tax-deferred investment vs. a taxable investment. For example, if an investor in the 25% federal income tax bracket purchases a tax-deferred investment with a 5% annual yield, that investor’s taxable equivalent yield is 6.67%. This means the investor would need to earn at least 6.67% on a taxable investment in order to match the 5% tax-deferred annual yield.

This chart is for illustrative purposes only and is not indicative of any particular investment or performance. In addition, it does not reflect any federal income tax that may be due when an investor receives distributions from a tax-deferred investment.

6 Steps to Financial Literacy

Retirees Finding Their WayWhile you don’t have to become a financial expert, you should develop an understanding of financial concepts such as these:

1.  The difference between saving and investing:

Some people think these are one and the same, but they’re not. The focus in saving is on preserving money that you accumulate over time. Money that is saved is typically “stored” in low-risk vehicles, such as bank savings accounts, CDs and money market accounts, which offer a relatively low return, but guarantee the principal and interest. A savings approach is appropriate for shorter-term needs that generally require a higher degree of liquidity, but is generally not the best approach for accomplishing your longer-term financial objectives. Investing, on the other hand, emphasizes accumulation through growth. Investment vehicles, such as stocks, bonds and mutual funds, involve a greater risk to principal than do savings vehicles, but also offer a higher return potential and may better guard against inflation. Most financial plans reflect a combination of savings and investments.

2.  The “magic” of compound growth:

Compound growth is simply earnings paid on previous earnings. The “magic” appears over time. To illustrate, let’s say we have one person who invests $100 per month for 20 years, from age 25 to age 45, and then invests nothing more for the next 20 years. Assuming an 8% annual return, this person’s initial $24,000 investment would grow to almost $275,000 by age 65. Another person, however, waits to begin investing until age 35 and then also invests $100 per month but for 30 years, from age 35 to age 65. Assuming this person realizes the same 8% annual return, the amount available at this person’s age 65 would be about $149,000. The second person invests more ($36,000 over 30 years vs. $24,000 over 20 years), but ends up with a good bit less at age 65 ($149,000 vs. $275,000). The moral here is to start saving and investing early, because the person who waits can never catch up to the person who starts at a younger age!

3.  Risk and reward: 

First off, let’s understand that there is risk in saving and investing…it can’t be avoided. You could keep your savings in a mattress and the mattress could catch on fire! The key is to understand the different types of risk and the relationship of risk and reward. For example, savings vehicles typically have no risk of loss of principal (market risk) or lack of a ready market when you need the money (liquidity risk). Without these risks, however, they produce a relatively low return, which means that they may not grow at a rate to keep pace with inflation (purchasing power risk). Investment vehicles, however, do come with both market risk and liquidity risk, including the risk of losing your principal investment. With these risks, however, investment vehicles offer the potential to produce a higher return and greater accumulation over time. The objective is not to eliminate risk. Rather, the objective is to balance risk and return in a way that is consistent with your temperament and financial goals.

4.  Diversification:

Diversification is an investment technique designed to minimize losses from the inevitable market downturns that will occur. When you diversify, you mix a variety of saving and investment vehicles in your portfolio, thus minimizing the impact of a single investment on the overall performance of your portfolio. The objective of diversification is to ensure that gains offset losses and the portfolio continues to grow in value.

5.  Understand saving and investment vehicles: 

Take the time to understand what you’re saving and investing in…the potential risks and rewards, the fees and expenses, the advantages and disadvantages.

6.  Investment resources:

Know where you can turn for advice. Decide whether you want to actively manage your investment portfolio or whether you’d prefer to pay an advisor to recommend specific investments, as well as make market timing and asset reallocation decisions.

The 3 Sources of Retirement Income

Dog Ready to Read  What Are the Available Sources of Retirement Income?

When you retire and your earning power ceases, you will have to depend on three primary sources for your retirement income:

 

Social Security

  • According to the Social Security Administration, the average retired worker in 2015 receives an estimated $1,328 monthly benefit, about 40% of average preretirement income. As pre-retirement income increases, however, the percentage replaced by Social Security declines.

Employer Sponsored Plans and IRAs

  • You may be eligible to participate in a retirement plan established by your employer and receive pension income at your retirement. You may also be able to contribute to an individual retirement account (IRA) to supplement Social Security and pension benefits.

Home Ownership and Personal Retirement

  • For many people, there is a gap between the retirement income they can expect from Social Security and employer-sponsored plans/IRAs and their retirement income objectives. Home equity can be used to bolster retirement security.
  • Personal retirement savings, including bank and brokerage accounts and insurance and annuity contracts, can be used to bridge a retirement income gap.

If sufficient retirement income is not available, will you defer your retirement age, or will you choose to reduce your standard of living?

 

Understanding Required Minimum Distributions

Beware of the RMD crash

The primary  goal of most retirees is to have adequate retirement money they will not outlive.  This goal could conflict withthe objective of the required minimum distribution rule which is to ensure that the entire value of a traditional IRA or employer-sponsored qualified retirement plan account will be distributed over the IRA retiree’s life expectancy.

The big question is what happens to retirees who live past normal life expectancy?  Longer life is becoming more common with each passing day.  Centurions are the fastest growing age group in the U.S.

When Must Required Minimum Distributions Begin?

  • In the case of traditional IRAs, required minimum distributions must begin no later than April 1 of the year following the year in which you reach age 70-1/2 and must continue each year thereafter.
  • In the case of employer-sponsored qualified retirement plans, required minimum distributions must begin by April 1 of the year that follows the later of (1) the calendar year in which you reach age 70-1/2 or (2) the calendar year in which you retire from employment with the employer maintaining the plan (unless the plan requires that you begin receiving distributions by April 1 of the year that follows the year in which you reach age 70-1/2).
  • If you wait until the year following the year in which you reach age 70-1/2 or, in the case of a qualified retirement plan, retire from employment, you must receive a minimum distribution on behalf of the previous year by April 1 of the current year, and a minimum distribution on behalf of the current year by December 31 of that year.

How Are Required Minimum Distribution Amounts Calculated?

  • IRS regulations regarding required minimum distributions include a “Uniform Lifetime Table” with “Distribution Period Factors.” The appropriate “Distribution Period Factor,” based on your age in the distribution year, is divided into your account balance as of the previous December 31 in order to determine your required minimum distribution for the current tax year.

What Happens if Minimum Distribution Requirements Are Not Met?

  • The difference between the required minimum distribution you should have received and the lower amount you actually received is subject to a penalty tax of 50%…an outcome to be avoided! Financial institutions report IRA distributions to the IRS on Form 5498 and are required to indicate if the IRA is subject to required minimum distributions.

May I Withdraw More Than the Required Minimum Distribution?

  • Yes, although minimizing qualified plan and IRA distributions may result in substantial tax savings. Consult your financial advisor for a more in-depth analysis.

Related post- Are RMDs a Danger to Retirement

NOTE: The above discussion does not apply to non-deductible Roth IRAs, which are not subject to minimum distribution requirements.

What is Trust?

The word “trust” is applied to all types of relationships, both personal and business, to indicate that one person has confidence in another person.

For our purposes, a trust is a legal device for the management of property. Through a trust, one person (the “grantor” or “trustor”) transfers the legal title to property to another person (the “trustee“), who then manages the property in a specified manner for the benefit of a third person (the “trust beneficiary“). A separation of the legal and beneficial interests in the property is a common denominator of all trusts.

In other words, the legal rights of property ownership and control rest with the trustee, who then has the responsibility of managing the property as directed by the grantor in the trust document for the ultimate benefit of the trust beneficiary.

A trust can be a living trust, which takes effect during the lifetime of the grantor, or it can be a testamentary trust, which is created by the will and does not become operative until death.

In addition, a trust can be a revocable trust, meaning that the grantor retains the right to terminate the trust during lifetime and recover the trust assets, or it can be an irrevocable trust, meaning that the grantor cannot change or terminate the trust or recover assets transferred to the trust.

Trusts can be used:

  • To provide management of assets for the benefit of minor children.
  • To assure the grantor that children will benefit from trust assets, but will not have control of those assets until the child is older.
  • To manage assets for the benefit of a disabled child, without disqualifying the child from receiving government benefits.
  • To provide for the grantor’s children from a previous marriage.
  • As an alternative to a will (a “revocable living trust”).
  • To reduce estate taxes and, possibly, income taxes.
  • To provide for a surviving spouse during his/her lifetime, with the remaining trust assets passing to the grantor’s other named beneficiaries at the surviving spouse’s death.

Trusts are complex legal documents and are not appropriate in all situations. Before establishing a trust, you should seek qualified legal advice.

Free Download- Managing Your Financial Life

Managing your financial life leads to a more fulfilling retirement.

Taking control of your finances and your financial future can help you reach your desired destinations in life. You want to control your finances, not let them control you.  You can do this by creating a strong financial foundation upon which you then build or live a satisfying retirement.

The Managing your Financial Life guide book covers these 8 topics.

  1. Financial Pyramid
  2. Financial Foundation
  3. Lifestyle
  4. Growing Your Money
  5. Managing Your Money: Retirement
  6. Managing Your Money: Estate
  7. Budget Organizer
  8. Document Checklist

Download a free copy of A life guide for Managing Your Financial Life

2015 Chart of Federal Individual Tax Rates

Did you have a New Year dream that taxes disappeared? I didn’t think so. 2015 is here and will be over before we know it. Since taxes are fact of life we all must plan with them in mind. Here is a table/chart of 2015 Federal Income Tax Rates for Individuals to help plan ahead.

 For additional information regarding: 2015 Federal Income Tax Digest

  • Individual income tax rates
  • Deductions & Tax Credits
  • Social Security/ Medicare rates
  • Health Savings Accounts
  • Retirement Plan Contribution Limits including Traditional and Roth IRAs  

For additional information Requests contact Tim Barton, ChFC at www.timbarton.net

 

When a Loved One Dies…

In order to relieve loved ones of additional stress, anxiety and expense at the time of a death in the family, consider recording as much information as possible in advance and providing copies to family members. Using our When a Loved One Dies Life Guide, you’ll be able to record and share the following information:

  • Names and contact information of your professional advisors.
  • Your vital statistics.
  • Your specific funeral instructions.
  • Historical information for your obituary.
  • People and organizations to be notified about a death.
  • Locations of vital documents.
  • Important banking and insurance information.
  • Your wishes for the disposition of personal property.
  • Any special requests and/or instructions.

In addition, this Life Guide provides information and suggestions on the actions to take immediately following a death in the family, as well as in the days, weeks and months to follow.

What Are the Implications of Dying Without a Will?

People who die without a valid will, die intestate. In this event, the state in which they resided effectively provides a will through the state’s intestacy law. This means that the state dictates who will receive the estate owner’s property and in what proportion.

While state intestacy laws do attempt to provide for a “fair” distribution of property, the state’s “one-size-fits-all” will simply cannot reflect the specific wishes of the estate owner in regard to either property distribution or the unique needs of the estate owner’s heirs.

In addition, state intestacy laws require that the probate court appoint a guardian for any minor children. The court-appointed guardian, who may not even be a relative, may be required to post bond and the guardianship will be supervised by the probate court.

Finally, when a person dies intestate, the probate court appoints an administrator of the estate. This administrator can be anyone of the court’s choosing and is required to post bond, an additional expense that must be paid by the estate.

The choice is yours…
you can draw your own will or the state will do it for you!

The Advantages of Having a Will Include:

  • A will allows property to be transferred according to the estate owner’s wishes, avoiding state intestacy laws.
  • A will permits a parent, instead of the state, to name the guardian for any minor children or other dependents, such as a handicapped adult child.
  • A will enables the estate owner to name an executor to administer the estate which, in some states, minimizes probate and its related expense.
  • A will can lower estate settlement costs by minimizing estate taxes, waiving probate fees and bonds and streamlining the disposition of estate assets.
  • Provisions in a will can defer distribution of a minor child’s remaining share of the estate to a more mature age than 18 or 21.
  • With a will, an estate owner can be certain that bequests of money or personal property to specific individuals or charitable organizations will be carried out.
  • If the estate includes a business, a will can authorize the executor to operate the business until the estate is settled, with no exposure to personal liability on the executor’s part.

What Is a Power of Attorney?

Durable Power of Attorney What Is It?

A power of attorney is a written document in which one person — the principal — authorizes another person — the attorney-in-fact — to act on the principal’s behalf.

What Authority Is Granted by a Power of Attorney?

The authority granted by a power of attorney depends on the type:

General Power of Attorney: The authority granted is very broad…the attorney-in-fact is granted essentially the same legal authority held by the principal. This means that the attorney-in-fact can exercise such powers as making gifts, buying and selling assets and filing tax returns on behalf of the principal.

Special Power of Attorney: The authority granted to the attorney-in-fact is limited to those powers specifically defined in the document.

The authority granted by both a general and a special power of attorney is typically limited to acts performed on behalf of the principal while the principal is competent, which brings us to a third type of power of attorney:

Durable Power of Attorney: The attorney-in-fact is authorized to act on behalf of the principal even if the principal becomes incapacitated. In fact, a durable power of attorney can become effective immediately, or it can become effective only if the principal later becomes incapacitated.

Why Should You Consider a Durable Power of Attorney?

In the event of future incapacitation, a durable power of attorney can be particularly useful in:

  • Estate Planning/Management: The attorney-in-fact acquires the authority to implement an estate plan and manage the principal’s estate during a period of incompetence.
  • Daily Living: A durable power of attorney can give the attorney-in-fact the authority to manage such practical issues as making living arrangements for a disabled person and paying the bills.

 

As with any legal document, legal advice should be obtained before entering into a power of attorney.

Another Role for Life Insurance

Another Role for Life Insurance…
The Wealth Replacement Trust

The Problem:

There can be significant tax advantages in giving appreciated assets to a charity. Examples include real estate and securities. If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

For example, Donor A purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If she sells the stock, Donor A must pay capital gains tax on the $75,000 gain. Alternatively, Donor A can donate the stock to a qualified charity and, in turn, rece

ive a $100,000 charitable income tax deduction. When the charity then sells the stock, no capital gains tax is due on the appreciation.

When a donor makes substantial gifts to charity, however, the donor’s family is deprived of those assets that they might otherwise have received.

A Potential Life Insurance Solution:

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift. Using the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums. At the donor’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

Why Should You Consider a Living Will?

What Is a Living Will?

“Living will” is a term commonly used to refer to a legal document available in most states that allows an adult to state in advance whether or not life-sustaining medical procedures should be used to prolong life when there is no chance for a reasonable recovery.

Why Should You Consider a Living Will?

Reasons to consider a living will include:

  • A belief that adults have the right to control medical decisions regarding their care, including the right to refuse or withdraw life-sustaining treatment.
  • Concern about the suffering and loss of dignity that can occur when life-sustaining measures are used to prolong an inevitable death.
  • Easing the emotional pain the family might otherwise have to suffer in making such a difficult decision.
  • Relieving a doctor’s and hospital’s fears of liability in withholding or withdrawing treatment.
  • Language concerning organ donation can be included in a living will.

How Do You Implement a Living Will?

While the validity of a living will is determined by state statute, the requirements generally include that the document be:

  1. In writing,
  2. Dated
  3. Signed 
  4. Witnessed by two people who are not related to the declarant and are not heirs of his or her estate.

In addition, doctors and their employees, as well as hospital employees, are generally not acceptable witnesses. Consult your doctor or attorney for more information about the availability of a living will in your state.

Once a living will has been executed, copies should be given to close family members, the primary doctor and the family attorney.

A living will can be revoked at any time by destroying the document and any copies or by signing a notarized revocation of the document.

She Solved Her Retirement Needs. And So Can You

Need retirement income you can’t outlive? Have coffee with Meg. Take a video break and learn how Meg uses a single premium immediate annuity (SPIA) to alleviate concerns about outliving her retirement assets and being unable to meet monthly expenses.

Retire with Confidence

People are living longer than ever before, meaning  that unpredictable market performance, higher  healthcare costs and rising inflation could impact  your retirement nest egg. Social Security is in  question, and you may or may not have a pension.
The reality is, many individuals simply may not be  able to maintain their standard of living — or worse  — may run out of money during retirement.

 Live Comfortably with Retirement Income- Consider the risks that can affect your retirement and life:

  • Lifespan – Living longer and outliving your retirement money.
  • Inflation – Cost of living increases that erode your retirement buying power.
  • Fluctuation – Market volatility that impacts your retirement assets.
  • Experience – Life events that require retirement plan flexibility.

At what rate can you safely withdraw from your portfolio to address these risks?

  • According to the Journal of Financial Planning the safe withdrawal is 2.52%.

Contact www.TimBarton.net

Benefits of Retirement Plan In-Service Withdrawal Make Sense for You?

You might know that you can move money from your employer’s qualified retirement plan to an IRA when you leave the employer.  But do you know you may be able to take advantage of this opportunity while still employed by the company?  There can be big benefits to this move.

What is an In-Service Withdrawal?

Basically, some companies allow active employees to move funds from an employer-sponsored qualified plan, such as a 401(k) or 403(b), while still contributing to the plan. When handled as a direct rollover, an actively working employee (usually age 59½ or older) then can buy an Individual Retirement Annuity (IRA) without current taxation. Of course, if a withdrawal is not rolled over to a qualified plan or IRA, it is considered taxable income (and may be subject to a 10% federal penalty if less than age 59½). But done right, there can be advantages to making this move.

What are the Benefits of an In-Service Withdrawal?

Using an in-service withdrawal to fund a deferred annuity in an IRA can offer these potential benefits:

  1. You may be able to gain more control over the retirement funds.
  2. You may be able to protect your retirement funds from market volatility.
  3. You may be able to choose options you feel better suit your retirement needs.
  4. You may be able to ensure yourself a guaranteed income stream in retirement.

What are the Next Steps?

  1. Talk to a Pro: Talk to your financial professional and see if taking an in-service withdrawal to fund an individual retirement annuity may benefit you.
  2. Talk to a Plan Administrator: Talk to your employer’s plan administrator about eligibility and requirements. They can tell you if the plan allows in-service withdrawals, and about any rules, such as withdrawal limits, fund types, transfer timing, etc.

Importance of Direct Rollover

As you consider an in-service withdrawal, it’s important to be certain your financial professional and plan administrator handle it properly — as a direct rollover.

With a direct rollover, your funds transfer from the plan trustee directly to another qualified retirement plan or IRA. By doing so they are not subject to tax withholding.

If your funds transfer to you, the plan participant, plan administrators must withhold 20% for federal income tax purposes, even if you intend to roll all the funds over within the 60-day time limit. This is a critical detail; one you don’t want to dismiss.

Added Considerations: Get the Complete Picture

  1. Talk with a tax advisor about potential tax implications before moving money out of your retirement plan.
  2. Use the proper paperwork. Most qualified plans have specific forms for direct rollovers.
  3. Some qualified plans may cease matching contributions for a period after taking an in-service withdrawal.
  4. The tax code allows the following to be rolled over from a qualified plan as an in-service withdrawal: Employer matching and profit-sharing contributions Employee after-tax contributions (non-Roth)
  5. Employee pre-tax and Roth contributions after age 59½
  6. The tax code does not allow rolling over the following before age 59½:
  7. Employer safe harbor match or safe harbor non-elective contributions
  8. Employee pre-tax or Roth contributions

What is the Marital Deduction?

What Is the Marital Deduction?

The marital deduction (I.R.C. Sections 2056 and 2523) eliminates both the federal estate and gift tax on transfers of property between spouses, in effect treating them as one economic unit.  The amount of property that can be transferred between them is unlimited, meaning that a spouse can transfer all of his or her property to the other spouse, during lifetime or at death, and completely escape any federal estate or gift tax on this first transfer.  However, property transferred in excess of the unified credit equivalent will ultimately be subject to estate tax in the estate of the surviving spouse.

The 2010 Tax Relief Act, however, provided for “portability” of the maximum estate tax unified credit between spouses if death occurred in 2011 or 2012.  The American Taxpayer Relief Act of 2012 subsequently made the portability provision permanent.  This means that a surviving spouse can elect to take advantage of any unused portion of the estate tax unified credit of a deceased spouse (the equivalent of $5,000,000 as adjusted for inflation; $5,340,000 in 2014).  As a result, with this election and careful estate planning, married couples can effectively shield up to at least $10 million (as adjusted for inflation) from the federal estate and gift tax without use of marital deduction planning techniques.  Property transferred to the surviving spouse in excess of the combined unified credit equivalent will be subject to estate tax in the estate of the surviving spouse.

If the surviving spouse is predeceased by more than one spouse, the additional exclusion amount available for use by the surviving spouse is equal to the lesser of $5 million ($5,340,000 in 2014 as adjusted for inflation) or the unused exclusion of the last deceased spouse.

What Requirements Apply to the Marital Deduction?

To qualify for the marital deduction, the decedent must have been married and either a citizen or resident of theU.S. at the time of death.  In addition, the property interest (1) must be included in the decedent’s gross estate, (2) must pass from the decedent to his or her surviving spouse and (3) cannot represent a terminable interest (property ownership that ends upon a specified event or after a predetermined period of time).

5 Reasons People Give

According to the Giving USA Foundation, individual giving accounted for 72% of all contributions to charitable organizations in 2012. 

Source: Giving USA Foundation™ – Giving USA 2013 Highlights

People give to charities for a variety of reasons. They give:

  1. Because they have compassion for the less fortunate.
  2. From a belief that they owe something back to society.
  3. To support a favored institution or cause.
  4. For the recognition attained by making substantial charitable donations.
  5. To benefit from the financial incentives our tax system provides for charitable gifts.

Regardless of your reasons for giving, a careful review of the various ways to structure charitable gifts can help make your gifts more meaningful, both to you and to the charities you choose to support.

A charitable gift is a donation of cash or other property to, or for the interest of, a charitable organization. The gift is freely given with the primary intention of benefiting the charity.

Whether given during lifetime or after death, charitable gifts are eligible for a tax deduction, but only if made to a qualified charitable organization. For example, you may have a relative who has fallen on hard times, someone you choose to help with gifts of cash. While you may be motivated by charitable intentions in making these gifts, you cannot deduct them for either income tax or estate tax purposes.

In general, qualified charitable organizations include churches, temples, synagogues, mosques and other religious organizations, colleges and other nonprofit educational organizations, museums, nonprofit hospitals, and public parks and recreation areas. Gifts to these types of organizations qualify for a federal income tax deduction if made during your lifetime or, if made after your death, can be deducted from the value of your estate for federal estate tax purposes.

On the other hand, examples of non-charitable groups include labor unions, social clubs, lobbying organizations, chambers of commerce, for-profit groups and individuals. Gifts to any of these are not eligible for a charitable tax deduction.

If in doubt about an organization’s qualified status, ask the charity for documentation of its tax-exempt status. Alternatively, the IRS provides a complete listing of approved charitable organizations in Publication 78, Cumulative List of Charitable Organizations (http://www.irs.gov). (search Pub 78)

Don’t forget to check how much of your contribution is used for the charity’s mission verses how much is paid out in other expenses such as administration, salary, employee benefits and fundraising.  http://www.charitynavigator.org/ is a good site to research a charity.

Teaching Grandkids about Money… Money Does Not Grow on Trees

At this point in our lives we’ve raised our own kids and hopefully the values we struggled to impart before they left home have become part of their family lives.  Now they’re raising  our grandchildren and like us, when we were new parents our kids will try to bring all of their life lessons into the mix.  The hard part, at times,  at least for me, is to keep my mouth shut not give unasked for advice.  Anyone else have that problem?

This narrows my options to – just setting the best example I can no matter the subject matter.  When it comes to money and finances.  Money does not grow on trees.

  • Young children can  understand the concept of money.  When I take them out and we’re going to buy a little something like an ice cream I give them the money to pay for it.   This teaches them money is exchanged for things we want.
  • Save all my “change” for grandkids. I split up this money into 3 coin purses for each kid marked 20% for savings,  10% sharing, and all the rest for whatever they want. (with parent’s permission of course)   The savings is used for their bigger desires/wants. The sharing can be used to buy things like ice cream, candy bars and other treats for family on outings or they will deposit it into Salvation Army kettles or other charitable containers found at the checkouts.  Elementary school age is a good time to start.
  • Demonstrate to the grandkids how to reach a savings goal.  Show them how saving X amount of their money each month and in how many months this money will equal an amount needed to buy a computer game, book or whatever.
  • When the grandkids are coming for a barbeque, a couple like to help cook.  We plan a menu, make a list of needed ingredients, figure out the budget (money to purchase listed items) and go to the store.  As we pick things out we discuss pricing,  brand names and how to evaluate the best deal.
  • Needs versus wants concept is very important throughout life for all of us.  As they age and gain understanding there are  things associated with my hobbies that reflect needs versus wants which make  good subject matter for discussion with my grandkids. Particularly an activity they have an interest in, like fishing for example.

These are just few examples of actions and conversation points  I use to demonstrate how to use money with my grandkids.  Actually I did the same things with their parents as they grew up and remember how I appreciated any support from other adults.  As a grandpa I just wait for the “teachable” moment or when the conversation flows that way.  To be effective today’s kids are no different than yesterday’s kids- the brains shut off during “the talk”.

Need more ideas?  Download my PDF booklet

“Money Doesn’t Grow on Trees…  Teaching Kids about Money”

Download Teaching Kids about Money booklet here

 

5 Retirement Planning Obstacles

What Are the Obstacles to Successful Retirement Planning?

There are a number of obstacles that you may face in planning for your retirement:

 Discipline to Save

Discipline to save.

  •  Many people find it difficult to form the habit of “paying themselves first,” by making regular deposits to a savings plan.

 Saving to Spend

Saving to Spend

  •  Money is saved for retirement purposes, but then is spent to make purchases.

 

 Income Taxes

Income Taxes

  •  Income taxes can erode the growth of your retirement savings.

Longer Life Expectancies

Advances in medical care and science is allowing us to live longer than ever before.

  •  Longer life expectancies increase the risk of retirees outliving at least a portion of their retirement income.

Inflation

Inflation requires more money to buy the same goods.

Longer life expectancies also increase the risk of inflation eroding the purchasing power of retirement income.

  • For example, if inflation increases at 3.5% a year, it would require over $1,400 in 10 years in order to maintain the original purchasing power of $1,000.

 

 

 

 

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