March 13, 2023 Weekly Update

Written by

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for March 13, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – Do You Need a Trust in Retirement?

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the importance of having a trust as part of your retirement plan with Andres Mazabel. Trust & Will provides an “easy and secure” way to create estate plans and settle estates online, with the ability to customize legal documents.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – Do You Need a Trust in Retirement?

Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.

CLICK HERE TO READ THE BLOG

Do You Need a Trust in Retirement?

Written by

Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.

We teamed up with Andres Mazabel at Trust & Will to streamline the process for everyone, and it has worked out well for so many of our clients.

Andres was a special guest on our most recent podcast to answer a question many of you may have: do you need a trust in retirement?

Why Trust & Will was Founded

Trust & Will, Andres’ company, was founded five years ago because more than 60% of families do not have an estate plan. Traditionally, financial advisors that wanted to help their clients with estate planning had to use an attorney for this process.

Now, Trust & Will offers estate planning documents in all 50 states, making the process:

  • Easier
  • More accessible
  • More affordable

While Trust & Will doesn’t replace an attorney, they make the process easier for people to set up their estate plans from the comfort of their own homes. You can even update your plan through the platform and consult with some of the attorneys on the Trust & Will team.

If you have 30 minutes to an hour, you can have your estate plan in place, which is something our clients love. By removing the friction and procrastination in estate planning, we find more of our clients have these important documents in place to protect everything they worked for in life.

Documents Everyone Needs in Retirement

One survey found that the biggest gaps people have when working with a financial advisor are:

  1. Wealth transfer advice
  2. Estate planning advice

Unfortunately, there’s a big gap in consumer knowledge of probate, wills and what happens when they’re no longer around.

With all of this in mind, we believe everyone should have a:

In addition, some of you reading this may also need a trust.

Trust vs Will in Estate Planning

Basic will documents outline, on paper and in legal documents, your assets and how you want them to be divided up upon your death. Then in the middle of this is something called “probate.” 

Probate, or the court process of a judge settling the estate, allows the judge to make the decision of what happens to your assets if you don’t have a will. Let’s look at an example of this:

  • You die without a will
  • You have no contact with your children
  • You wish for your assets to be transferred to your fiancée

In the above scenario, your estate would be settled in probate. The judge, who has no knowledge of your family dynamics, will split the assets in accordance with the law, and a large portion will go to the children you haven’t heard from in years.

Of course, your parents and siblings may also receive some portion of your estate.

A trust helps your estate avoid probate.

Depending on the state you live in and the assets you have, you may or may not need a trust. In California, if you have taxable accounts above $184,500 (this figure can and does change), these assets will go through probate.

Without an estate plan, a person who exceeds these amounts would have their assets go into probate and then keep the family in probate for 12 months or more.

You don’t want to keep these assets from your family for a year or more.

A trust can be set up to allow you to direct your assets the way you want and at the time that you want. Additionally, the details of the trust are private, but probate is a public matter that anyone can see.

For example, with a trust, you can:

  • Give your kids all of the funds at once
  • Give your kids a percentage of a fund at certain age or life milestones
  • Set money aside for charity

What You Should Know About Creating a Trust

A trust, in its most simple form, is a legal agreement, in which some ways, creates a legal entity. A revocable living trust is the most common form of a trust, and while you’re alive, you can manage the trust, update beneficiaries and have a successor trustee in place.

When the trustee is no longer around, the successor trustee will step in and then be in charge of executing your wishes for the trust. You have a lot of options on who you can choose as your successor trustee, such as:

  • Family member
  • Spouse
  • Someone you trust

You also have the option of hiring a corporate trustee who you pay to execute the plan that you have for your trust. 

If you have an estate under $5 million, most people don’t need a corporate trustee. However, if your estate is worth more than this amount, it may be worthwhile to use a corporate trustee to manage the trust when you’re gone.

Trusts and estate plans can be modified and adjusted while you’re alive because your plans will change over time.

Example Situation of a Trust in Action

Visualizing the benefit of a trust in retirement is easier with an example. Let’s say that a person has:

  • An IRA with beneficiaries in place
  • A house or vacation home

Logistically, with the houses, they would go through probate if you didn’t have a will in place – if the asset was in your name only. Perhaps the asset was purchased before you were married, so it’s not part of your marital property either.

If you pass away suddenly, the real estate will go through probate because no one else is on the deed.

A trust would “own” the real estate, which transfers the deed of the property to the trust, and in a good number of states, you can do a deed transfer, too. Deed transfers allow you to pass the property to someone else without a trust.

However, a trust ensures that the property is transferred before your death so that you can leave it to someone else via your trust’s plan.

You may also have taxable accounts that would undergo a very similar process, such as:

  • Bank accounts
  • CDs
  • Investment accounts (not under an IRA or Roth IRA)

Proper titling of these accounts (such as having named beneficiaries) can help you protect these assets.

A trust allows you to either transfer the asset to the trust or leave the trust as the beneficiary if you wish. Retirement accounts are often not included in a trust. Instead, these accounts often have a beneficiary listed who takes over an account.

Trusts can also help you with business succession, allowing you to pass your business to someone else or have it liquidated.

Do You Need a Trust?

You may or may not need a trust, but you always want to avoid probate. If you have cash assets that can have beneficiaries added to them, the account avoids probate. However, if you have real estate, a business or other assets that do go through probate, a trust may be in your best interest.

We find that a trust is in your best interest in certain states and not others.

Texas is a state that offers fast and efficient probate, so you likely don’t need a trust if you live in Texas. With that said, we recommend that you take the time to talk to your financial advisor or estate planning attorney to determine if a trust is in your best interest.

Our clients have access to Trust & Will as part of our service, but you can also visit https://trustandwill.com/ to set up your own trust and will online.

If you have any questions about your trust, will or financial future, contact us and we’ll help you in any way that we can.

Documents for Estate Planning and Retirement

Written by

Documents Every Person Needs for Estate Planning

     Is Estate Planning on your priority list? A common misconception about estate planning is that it is only necessary if you have a big estate, many assets, or a complicated family situation. 

The reality is, estate planning ensures that decisions that would be difficult to make in the moment are made in advance to make things easier in the future. 

    By making these decisions in advance and setting them out in writing or in some other way, you can ensure that the wishes of you or a loved one are preserved and that there is a concrete plan for what happens if someone needs to make a decision on your behalf after you die.

     Estate planning also governs what comes next after you die, from what happens to your property to how your funeral will be handled. At its core, estate planning is giving yourself the peace of mind that the people you leave behind will know what to do and will be taken care of, a concept that is very comforting for many. This can be part of your Retirement Planning Checklist.

Estate Planning Documents

      A number of legal documents must be prepared as a part of the estate plan. It is important that these documents are prepared correctly to ensure that your intent is reflected, that nothing slips through the cracks, and of course, that your will and other related documents are validly executed so you do not die intestate. 

      When Preparing for Retirement with estate planning, there are generally three main documents that attorneys advise families to prepare: A will, a durable power of attorney, and a healthcare power of attorney with a living will component. These three documents allow others to legally act for you, which is a powerful, invaluable tool when it comes to managing your end-of-life affairs.

  • Will
  • A will is a legal document that tells readers your wishes after your death, from the distribution of your property to the management of your estate to your intentions for how your children will be raised, in some situations. 
  • While, in some states the law recognizes handwritten/holographic wills, working with a seasoned estate planner or attorney will ensure that your estate is distributed exactly as you would like it to be. 
  • Some wills benefit from the inclusion of specialized clauses that allow for others to act on behalf of the estate, which can come in handy if the language of a will is unclear or if the way a certain property is set to be distributed is impracticable. 
  • For example, wills can include a power of sale provision, which allows the executor of the estate to sell a given property and distribute the funds among the will’s beneficiaries. 
  • Healthcare Power of Attorney
  • A healthcare power of attorney is a legal document that allows an established person to make healthcare decisions on the behalf of another. 
  • This kind of estate planning document is particularly helpful in situations where you or a loved one are unable to make healthcare decisions on your own behalf, like if you are in a medically induced coma or experience a lack of capacity. 
  • A living will is often part of the healthcare power of attorney document. The living will expresses what a person wants, while the healthcare power of attorney states who is authorized to be a decisionmaker.
  • Durable Power of Attorney
  • Durable power of attorney is similar to the healthcare power of attorney but is much broader. Durable power of attorney allows a person to entrust another with virtually all legal decisions. 
  • Someone who has durable power of attorney can make healthcare and financial decisions and even sign legal documents on behalf of another in the event that the person who gave them the power is incapacited or otherwise cannot act on their own behalf. 
  • Power of attorney is a powerful tool to entrust someone with, and can be used to make changes and allow access to bank accounts, various assets, and even change the beneficiaries of a will or similar legal document.

      With the help of these three key estate planning documents, you can feel confident that your loved ones will be taken care of and that it will be as simple as possible for your wishes to be respected after you die.

      If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

      In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

The Stretch IRA is Gone: What Next for Your Inheritance?

Written by

The stretch IRA is dead, so what options do you have when it comes to inheritance planning?

At the start of 2020, new rules were introduced on how individual retirement account (IRA) holders can use the “stretch” IRA to manage their inheritance. With changes to the way beneficiaries access inheritance assets, you may have questions about what the rules mean for you and your loved ones.

In this post, we look at what happened to the stretch IRA and how it could affect your inheritance planning. We also cover some of the alternatives to stretch IRAs, including life insurance and Roth conversions.

What happened to the stretch IRA?

On January 1, 2020, the Secure Act was passed and with it came to the end of the stretch IRA. For years, this estate planning strategy was a tax-advantageous way to leave an IRA to a non-spouse beneficiary, but now it’s no longer an option.

So, which new rules were introduced under the Secure Act 2020? And what effect have they had on how IRAs work?

The biggest change concerns how a beneficiary can access an IRA after they’ve inherited it. Previously, a stretch IRA allowed non-spouse beneficiaries unlimited time to withdraw funds from their inheritance. Now, the money must be out of the IRA within 10 years after the date of death, so beneficiaries can no longer access them over their lifetime.

Say, for example, you want to leave $40,000 to your grandchild, who is 30 years old. The Secure Act now means they must withdraw all of the assets within 10 years, either as a lump sum or as annual distribution payments. If they don’t, they’ll have to pay tax all at once, which could significantly reduce their inheritance pot.

Thankfully, the introduction of the Secure Act isn’t all bad news for those with an IRA. There are two other rule changes which many will see as a benefit:

  • The age at which you must withdraw required minimum distributions (RMDs) from your IRA has risen from 70 to 72. This means you’ll have two more years to pay into your retirement account before you need to start drawing money from it.
  • The Secure Act has removed the upper age limit of paying into an IRA. Now, so long as you’re still earning income, you can continue paying into your retirement account indefinitely.

What to consider when withdrawing from an IRA inheritance fund

Now that beneficiaries have just 10 years to withdraw assets from an IRA, they must think about how and when to access their inheritance. Remember, a beneficiary can withdraw funds either as a lump sum or as regular distributions, affecting how much they pay in tax.

If a beneficiary is 60-65 and within 10 years of retirement, it could be worth waiting until they retire before withdrawing money from the IRA. That’s because retirement means a smaller income, so they’ll be in a lower tax bracket and pay less tax on the total inheritance amount.

For younger beneficiaries, withdrawing from an IRA over the 10-year period may be more advantageous – especially if they expect their income to increase as they get older.

Through these examples, you can see why it’s important for beneficiaries to think about the best time to withdraw funds from an IRA. We’d always recommend discussing these options with your beneficiaries so that they can make the most of their inheritance after you’ve gone.

How to manage your inheritance now that the stretch IRA is gone

Now that the stretch IRA is a thing of the past, what other options can help you make the most of your inheritance?

With advanced IRA planning, you can make sure your beneficiaries don’t face a heavy tax burden on their inheritance. There are a few different options that provide good alternatives to the stretch IRA, including Roth conversions and life insurance.

Roth conversions

A Roth conversion is the process of switching your pre-tax IRA assets into tax-free ‘Roth’ assets. This means that you pay the tax on your beneficiary’s inheritance so that all the money they receive is tax-free.

The beauty of Roth assets is that, while the 10-year Secure Act rule still applies, there’s no tax to worry about for both lump sum and annual withdrawals. What’s more, as Roth assets earn interest, it’s well worth letting the inheritance grow over the 10-year period.

A Roth conversion does mean you’ll have to settle the tax bill yourself, passing this benefit to your beneficiary. If that’s important to you, it could be a great option.

Life insurance

The second option we’d recommend as an alternative to the stretch IRA is life insurance. Although slightly more complicated than a Roth conversion, taking out life insurance guarantees tax-free inheritance for your beneficiaries after you’ve gone.

A key thing to note about the life insurance option is that you have to go through underwriting, meaning you first have to qualify. Some people may be concerned that their age will bar them from taking out life insurance, but you may be surprised at the rates and options available.

Life insurance is a great way to ensure your non-spousal beneficiaries can enjoy their inheritance without worrying about tax. What’s more, there’s no 10-year rule on when an inheritor has to withdraw the funds from a life insurance plan, making it a beneficial long-term inheritance option.

So, if you have money set aside as inheritance, life insurance could be the best way to guarantee a tax-free benefit for your loved ones.

Do you need help with your inheritance planning?

We understand that planning your inheritance can be complicated, especially given the recent rule changes introduced by the Secure Act. So, if you need help understanding the different options available, our experts can provide impartial advice on the best way to pass your retirement assets on to your loved ones.

Whatever you’re planning for your inheritance and however big the sum you’ve set aside for your beneficiaries, we can help make the process simpler to manage. Book a complimentary 15-minute call with a member of our team to discuss your retirement goals today.