On January 1, 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and it could have big implications for both your retirement and estate planning strategies—and not all of them are positive.

Last week, I gave you a general overview of the SECURE Act’s most impactful provisions. Under the new law, your heirs could end up paying far more in income taxes than necessary when they inherit the assets in your retirement account. Moreover, the assets your heirs inherit could also end up at risk from creditors, lawsuits, or divorce. And this is true even for retirement assets held in certain protective trusts designed to shield those assets from such threats and maximize tax savings.

Here, we’ll cover the SECURE Act’s impact on your financial planning for retirement, offering strategies for maximizing your retirement account’s potential for growth, while minimizing tax liabilities and other risks that could arise in light of the legislation’s legal changes.

Tax-advantaged retirement planning

If your retirement account assets are held in a traditional IRA, you received a tax deduction when you put funds into that account, and now the investments in that account grow tax free as long as they remain in the account. When you eventually withdraw funds from the account, you’ll pay income taxes on that money based on your tax rate at the time.

If you withdraw those funds during retirement, your tax rate will likely (but not always) be lower than it is now. The combination of the upfront tax deduction on your initial investment with the likely lower tax rate on your withdrawal is what makes traditional IRAs such an attractive option for retirement planning.

Thanks to the SECURE Act, these retirement vehicles now come with even more benefits. Previously, you were required to start taking distributions from retirement accounts at age 70 ½. But under the SECURE Act, you are not required to start taking distributions until you reach 72, giving you an additional year-and-a-half to grow your retirement savings tax free.

The SECURE Act also eliminated the age restriction on contributions to traditional IRAs. Under prior law, those who continued working could not contribute to a traditional IRA once they reached 70 ½. Now you can continue making contributions to your IRA for as long as you and/or your spouse are still working.

From a financial-planning perspective, you’ll want to consider the effect these new rules could have on the goal for your retirement account assets. For example, will you need the assets you’ve been accumulating in your retirement account for your own use during retirement, or do you plan to pass those assets to your heirs? From there, you’ll want to consider the potential income-tax consequences of each scenario.

Your retirement account assets are extremely valuable, and you’ll want to ensure those assets are well managed both for yourself and future generations, so you should discuss these issues with your financial advisor as soon as possible. If you don’t already have a financial advisor, we’ll be happy to recommend a few we trust most.

And if you meet with us for a Family Estate Planning Session (or for a review of your existing plan) to discuss your options from a legal perspective, we can integrate your financial advisor into our meeting. Together, we can look at the specific goals you’re trying to achieve and determine the best ways to use your retirement-account assets to benefit yourself and your heirs.

Here are some things we would consider with you and your financial advisor:

Converting to a ROTH IRA
In light of the SECURE Act’s changes, you may want to consider converting your traditional IRA to a ROTH IRA. ROTH IRAs come with a potentially large tax bill up front, when you initially transition the account, but all earnings and future distributions from the account are tax free.

Life insurance trust options
Given the new distribution requirements for inherited IRAs, we can also look at whether it makes sense to withdraw the funds from your retirement account now, pay the resulting tax, and invest the remainder in life insurance. From there, you can set up a life insurance trust to hold the policy’s balance for your heirs.

By directing the death benefits of that insurance into a trust, you can avoid burdening your beneficiaries with the SECURE Act’s new tax requirements for withdrawals of inherited retirement assets as well as provide extended asset protection for the funds held in trust.

Charitable trust options
If you have charitable inclinations, we can consider using a charitable remainder trust (CRT). By naming the CRT as the beneficiary of your retirement account, when you pass away, the CRT would make monthly, quarterly, semi-annual, or annual distributions to your beneficiaries over their lifetime. Then, when the beneficiaries pass away, the remaining assets would be distributed to a charity of your choice.

The decision of whether to transition your traditional IRA into a ROTH IRA now, or cash out and buy insurance, or use a CRT to provide for your beneficiaries is a solvable “math problem.” Using the specific facts of your life goals as the elements that go into solving the problem, we can team up with your financial advisor to help you do the math and solve the equation.

Adjusting your plan
While the SECURE Act has significantly altered the tax implications for retirement planning and estate planning, as you can see, there are still plenty of tax-saving options available for managing your retirement account assets. But these options are only available if you plan for them.

If you don’t revise your plan to accommodate the SECURE Act’s new requirements, your family will pay the maximum amount of income taxes and lose valuable opportunities for asset-protection and wealth-creation as well. You’ve worked too hard for these assets to see them lost, squandered, or not pass to your heirs in the way you choose, so put this planning at the top of your new year’s resolution list.

Dedicated to empowering your family, building your wealth and defining your legacy,

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act, is effective as of January 1, 2020. The Act is the most impactful legislation affecting retirement accounts in decades. The SECURE Act has several positive changes: It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts. However, perhaps the most significant change will affect the beneficiaries of your retirement accounts: The SECURE Act requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.

The SECURE Act does provide a few exceptions to this new mandatory ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals. However, proper analysis of your estate planning goals and planning for your intended beneficiaries’ circumstances are imperative to ensure your goals are accomplished and your beneficiaries are properly planned for.

Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy. Under the SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly causing your beneficiaries to be bumped into a higher income tax bracket, thus receiving less of the funds contained in the retirement account than you may have originally anticipated.

Your estate planning goals likely include more than just tax considerations. You might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, or a divorcing spouse. In order to protect your hard-earned retirement account and the ones you love, it is critical to act now.

Review/Amend Your Revocable Living Trust (RLT) or Standalone Retirement Trust (SRT)

Depending on the value of your retirement account, you may have addressed the distribution of your accounts in your RLT, or you may have created an SRT that would handle your retirement accounts at your death. Your trust may have included a “conduit” provision, and, under the old law, the trustee would only distribute required minimum distributions (RMDs) to the trust beneficiaries, allowing the continued “stretch” based upon their age and life expectancy.  A conduit trust protected the account balance, and only RMDs–much smaller amounts–were vulnerable to creditors and divorcing spouses. With the SECURE Act’s passage, a conduit trust structure will no longer work because the trustee will be required to distribute the entire account balance to a beneficiary within ten years of your death. You many now need to consider the benefits of an “accumulation trust,” an alternative trust structure through which the trustee can take any required distributions and continue to hold them in a protected trust for your beneficiaries.

Consider Additional Trusts

For most Americans, a retirement account is the largest asset they will own when they pass away. If you have not done so already, it may be beneficial to create a trust to handle your retirement accounts. While many accounts offer simple beneficiary designation forms that allow you to name an individual or charity to receive funds when you pass away, this form alone does not take into consideration your estate planning goals and the unique circumstances of your beneficiary. A trust is a great tool to address the mandatory ten-year withdrawal rule under the new Act, providing continued protection of a beneficiary’s inheritance.

Review Intended Beneficiaries

With the changes to the laws surrounding retirement accounts, now is a great time to review and confirm your retirement account information. Whichever estate planning strategy is appropriate for you, it is important that your beneficiary designation is filled out correctly. If your intention is for the retirement account to go into a trust for a beneficiary, the trust must be properly named as the primary beneficiary. If you want the primary beneficiary to be an individual, he or she must be named. Ensure you have listed contingent beneficiaries as well.

If you have recently divorced or married, you will need to ensure the appropriate changes are made because at your death, in many cases, the plan administrator will distribute the account funds to the beneficiary listed, regardless of your relationship with the beneficiary or what your ultimate wishes might have been.

What Happens Next

If you are a client, we’ll be reaching out to you over the coming weeks if your plan is affected by the SECURE Act. If you are not a client, and don’t have an ongoing relationship with a trusted advisor, we’d be happy to review your plan to determine if it is affected by the SECURE Act. And if you have yet to get an estate plan in place, there’s no better time to get that process started. Let us know if we can help and happy new year!

Dedicated to empowering your family, building your wealth and defining your legacy,

With more and more Baby Boomers reaching retirement age each year, our country is undergoing an unprecedented demographic transformation that’s been dubbed “The Greying of America.” This population shift stands to affect many aspects of life, especially your relationships with aging parents and other senior family members.

By 2060, the number of Americans aged 65 and older is projected to nearly double from 52 million in 2018 to 95 million, which will account for 24% of the total population. And as early as 2030, the number of those 65 and older is expected to surpass the number of children (those under age 18) for the first time in history.

Coinciding with the boom in the elderly population, the number of Americans suffering from Alzheimer’s and other forms of dementia is expected to increase substantially as well. The Centers for Disease Control (CDC) estimates that the number of Americans with Alzheimer’s disease will double by 2060, when it’s expected to reach 14 million—more than 3% of the total population.

A decline in financial capacity
Although Alzheimer’s is the most common cause of dementia in older adults, it’s not the only one. In fact, the National Institute on Aging estimates that nearly half of all Americans will develop some form of dementia in their lifetime. And while the cognitive decline brought on by dementia affects a broad array of mental functions, many people aren’t aware that one of the first abilities to go is one’s “financial capacity.”  

Financial capacity refers to the ability to manage money and make wise financial decisions. Yet cognitive decline brought on by dementia often develops slowly over several years, so a diminished financial capacity frequently goes unnoticed—often until it’s too late.

“Financial capacity is one of the first abilities to decline as cognitive impairment encroaches,” notes the AARP’s Public Policy Institute, “yet older people, their families, and others are frequently unaware that these deficits are developing.” 

Ironically, studies have also shown that the elderly’s confidence in their money management skills can actually increase as they get older, which puts them in a perilous position. As seniors begin to experience difficulty managing their money, they don’t realize they’re making poor choices, which makes them easy targets for financial exploitation, fraud, and abuse.

Watch for red flags over the holidays
Now that we’re in the peak of the holiday season, you’re likely spending more time with your aging parents and other senior relatives. This provides an ideal opportunity to be on the lookout for signs that your loved ones might be experiencing a decline in their financial capacity. The University of Alabama study “The Warning Signs of Diminished Financial Capacity in Older Adults” identified six red flags to watch for:

1. Memory lapses: Examples include missing appointments, failing to make a payment—or making multiples of the same payment—forgetting to bring documents or where documents are located, repeatedly giving the same orders, repeatedly asking the same questions.

2. Disorganization: Mismanaging financial documents, and losing or misplacing bills, statements, or other records.

3. Declining checkbook management skills: Forgetting to record transactions in the register, incorrectly or incompletely filling out register entries, and incorrectly filling out the payee or amount on a check.

4. Mathematical mistakes: A declining ability to do basic oral or written math computations, such as making change.

5. Confusion: Difficulty understanding basic financial concepts like mortgages, loans, or interest payments, which were previously well-understood.

6. Poor financial judgment: A new-found interest in get-rich-quick schemes or radical changes in investment strategy.

Managing diminished financial capacity

If you notice your parents or other senior family members displaying any of these behaviors, you should take steps to protect them from their own poor judgement. It’s vital to address their cognitive decline as early as possible, not only to prevent financial mismanagement and exploitation, but also to ensure their overall health and safety.

There are several estate planning tools that can be put in place to help your aging parents and other senior family members protect themselves and their assets from the debilitating effects of dementia and other forms of incapacity. In part two of this series, we’ll discuss the specific planning tools available for this purpose, and provide some guidance on how to address this sensitive subject with your elderly loved ones. 

Dedicated to empowering your family, building your wealth and defining your legacy,

Retirement planning is one of life’s most important financial goals. Indeed, funding retirement is one of the primary reasons many people put money aside in the first place. Yet many of us put more effort into planning for our vacations than we do to prepare for a time when we may no longer earn an income.

Whether you’ve put off planning for retirement altogether or failed to create a truly comprehensive plan, you’re putting yourself at risk for a future of poverty, penny pinching, and dependence. The stakes could hardly be higher.

When preparing for your final years, it’s not enough to simply hope for the best. You should treat retirement planning as if your life depended on it—because it does. To this end, even well-thought-out plans can contain fatal flaws you might not be aware of until it’s too late.

Have you committed any of the following three deadly sins of retirement planning?

1. Not having an actual plan
Even if you’ve been diligent about saving for retirement, without a detailed, goal-oriented plan, you’ll have no clear idea whether your savings strategies are working adequately or not. And such plans aren’t just about calculating a retirement savings number, funding your 401(k), and then setting things on auto-pilot.

Once you know how much you’ll need for retirement, you must plan for exactly how you’ll accumulate that money and monitor your success. The plan should include clear-cut methods for increasing income, reducing spending, maximizing tax savings, and managing investments when and where needed.

What’s more, you should regularly review and update your asset allocation, investment performance, and savings goals to ensure you’re still on track to hit your target figure. With each new decade of your life (at least), you should adjust your savings strategies to match the specific needs of your new income level and age.

Failing to plan, as they say, is planning to fail.

2. Not maximizing the use of tax-saving retirement accounts
One way or another, the money you put aside for retirement is going to be taxed. However, by investing in tax-saving retirement accounts, you can significantly reduce the amount of taxes you’ll pay.

Depending on your employment and financial situation, there are numerous different plans available. From traditional IRAs and 401(k)s to Roth IRAs and SEP Plans, you should consider using one or more of these investment vehicles to ensure you achieve the most tax savings possible.

What’s more, many employers will match your contributions to these accounts, which is basically free money. If your employer offers matching funds, you should not only use these accounts, but contribute the maximum amount allowed—and begin doing so as early as possible.

Since figuring out which of these plans will offer the most tax savings can be tricky—and because tax laws are constantly changing—you should consult with a professional financial advisor to find the one(s) best suited for your particular situation. Paying taxes is unavoidable, but there’s no reason you should pay any more than you absolutely must.

3. Underestimating health-care costs
It’s an inescapable fact that our health naturally declines with age, so one of the riskiest things you can do is not plan for increased health-care expenses.

With many employers eliminating retiree health-care coverage, Medicare premiums rising, and the extremely volatile nature of health insurance law, planning for your future health-care expenses is critical. And it’s even more important seeing that we’re now living longer than ever before.

Plus, these considerations are assuming that you don’t fall victim to a catastrophic illness or accident. The natural aging process is expensive enough to manage, but a serious health-care emergency can wipe out even the most financially well off.

Start preparing for retirement now
The best way to maximize your retirement funding is to start planning (and saving) as soon as possible. In fact, your retirement savings can be exponentially increased simply by starting to plan at an early age.

Let us know if we can help. We’ll be glad to review what you have in place now, advise you about what you need, introduce you to advisors you can trust, and ensure you and your family are well-protected and planned for, no matter what.

Dedicated to empowering your family, building your wealth and defining your legacy,

retirement 91024When it comes to retirement plans, IRAs and 401(k)s provide many of the same benefits. But in certain situations, an IRA can outperform a 401(k). IRAs aren’t right for everyone, so you should become familiar with the advantages IRAs have over 401(k)s before you transfer funds or set up a new account. To help you do this, here are a few benefits you can reap from an IRA which are not available in a 401(k).

  1. Qualified Charitable Distributions (QCDs)

IRAs allow you to take QCDs and send them directly to the charity without including the distribution amount in your taxable income. This often results in a lower tax bill. You can also use your QCDs to offset your required minimum distribution.

  1. Penalty-Free Distribution for Higher Education

A 401(k) distribution for higher education expenses will incur both a tax and a penalty. Taking an early IRA distribution to pay for higher education expenses for you or certain family members, however, is penalty-free.

  1. Freedom from Distribution Restrictions

Opportunities for early distributions of 401(k)s are limited at best. Subject to the plan administrator’s rules as well as the tax code, 401(k)s require a compelling reason such as a hardship, to receive an early distribution. Conversely, IRA distributions are restriction free. You can take an IRA distribution at any time and do not need an approved reason like you would with 401(k)s.

  1. Aggregate Required Minimum Distributions (RMD) From Multiple Accounts

If you have multiple IRAs, you can aggregate the RMDs for your accounts and then take that amount out of one or any combination of your IRAs. Doing this with your 401(k)s, however, results in steep penalties.

  1. No Withholding

You can opt-out of tax withholding from an IRA distribution but not with a 401(k) distribution. This is a great benefit for those who end up with little or no tax liability at the end of the year.

  1. Self Direction

One of the best parts of having an IRA, instead of a 401k, is that you have the most flexibility in how your IRA assets are invested, whereas with a 401k, your investment options are limited to those provided by the 401k Administrator. With an IRA, you can move your entire retirement account into a self-directed IRA account and then invest the money anywhere you want, including in real estate and start-ups. Yes, it’s true! You get to choose.

Deciding whether to maintain your retirement account as an IRA or a 401k is an important decision and you should understand the benefits and limitations of both.

Relying on generalized information found online is not enough to protect your interests. Guidance from your Personal Family Attorney provides personalized, legal assistance and empowers you to make the very best decisions when planning for retirement and all of life’s other big changes.

Dedicated to empowering your family, building your wealth and delivering your legacy,Marc Garlett 91024

Retirement 91024Our country is one of consumption. We buy, we use, we throw away. Unfortunately, this mentality has led to a society where over half of Americans lack a stock portfolio and where we are judged not just on our buying power but what we do with it. After all, who wants to sock money away for retirement when the new iPhone 7 just came out? So, in a culture where nearly half of all Americans have no retirement savings, we must stop and ask; what’s going on here? This question may be best answered by an Anthropologist or Sociologist, but we can still learn a lot by just looking at the numbers:

  •         45% of working-age American households have no retirement account savings
  •         53% of all Americans have no stock investments
  •        $403.35 is how much the average American spent on Black Friday in 2015.

What do these numbers say? Most obviously, they tell us we’re better at spending than saving. And all this spending doesn’t necessarily improve our lives – in meaningful ways at least. So, the lesson to be learned here is simple; it’s easier to spend than to save. And all that spending takes a toll no just on our finances, but on our planet, as well. In the US alone we generate 220 million tons of waste a year, with over half of it ending up in landfills. Think about that the next time you buy a cheaply made, “disposable” item.

Saving for retirement and avoiding over-consumption, however, is easier said than done. Making a real difference is a result of making better choices, consistently. While it’s hard to see the benefit of saving a few dollars here and there, it does add up over time. I can put an amazing estate plan together to enable a client to pass on their wealth to the next generation, but if I don’t help that same client conserve – or better yet, build – wealth, there may be nothing left to pass.  So, part of my job, at least, is to help clients improve their financial position throughout their lifetime, as well as help ensure the financial validity of their estate plan.

At my firm, we don’t just draft documents. We ensure clients make informed and empowered decisions about life. That includes their estate plan, finances, legal issues, and everything else that affects their ability to protect and provide for the people they love most in the world. By taking that holistic approach, we are able to be a part of real transformation – not only in the lives of our clients but for their extended families, too. That’s exciting stuff.

Dedicated to empowering your family, enhancing your wealth and embedding your legacy,
Marc Garlett 91024

Retirement 91024You’ve spent your entire life building up your retirement account. It may even be the biggest asset you’ll leave behind for the people you love.

If that’s the case, you may want to consider creating a special trust designed specifically to receive your retirement account assets in the event of your death.

If you leave your retirement account to the people you love outright, simply by naming them as beneficiaries on your retirement account rather than through a special trust, here are the risks:

  1. Some studies indicate 80% of retirement account beneficiaries immediately liquidate the account and frivolously spend the assets (and on top of using the assets in ways you may not agree with, they also lose significant tax benefits for these assets you worked so hard to create);
  2. If your beneficiary is married and does not properly handle the retirement assets you leave behind, and then gets divorced, your hard-earned assets could end up in the hands of the future ex-spouse of your beneficiary;
  3. If you are in a second marriage situation with children from a prior marriage, you may be setting your spouse and children up for conflict after you are gone, due to the way you have planned (or not planned) for the passage of your retirement account.
  4. If your beneficiary is ever in a situation where he or she has creditors or may have to file bankruptcy, and you’ve left your retirement account to him or her without a special trust, your retirement account would go to satisfy those creditors first.

Here’s the good news, it’s not hard to protect your retirement account for your beneficiaries with the right planning. We use a variety of special trusts to ensure the retirement assets you’ve worked so hard to build up throughout your life are passed on to the people you love so they are totally protected from a future divorce, creditors, bankruptcy and so that they do not create conflict for your loved ones.

If you have a significant retirement account whose designated beneficiary is your spouse or children, or even your regular revocable living trust, call us to have your planning reviewed immediately.

Dedicated to your family’s health, wealth, and happiness,
Marc Garlett 91024

estate planning 91024A recent U.S. Supreme Court decision changes the way inherited IRAs are viewed when it comes to bankruptcy, which means those who inherit these retirement account assets must find new ways to protect that inheritance.

In Clark v. Rameker, Heidi Heffron-Clark inherited an IRA from her mother. She received distributions from that inherited IRA for several years before filing Chapter 7 bankruptcy. Ms. Heffron-Clark relied on the Bankruptcy Code, which states that IRAs are exempt up to $1.245 million from bankruptcy, to claim her inherited IRA qualified for the retirement account exemption.

In a unanimous ruling, the Supreme Court disagreed, distinguishing inherited IRAs from other IRAs established by an individual for his or her own retirement. Because the beneficiary of an inherited IRA cannot make contributions to that IRA, an inherited IRA does not provide any tax incentives, which is an important purpose of other IRAs. Since the beneficiary of an inherited IRA has different rules for taking distributions than other IRA owners, this also establishes inherited IRAs as different from other IRAs. These differences, the Court reasoned, are enough to disqualify an inherited IRA from qualifying for the federal bankruptcy exemption.

Even though some states offer protection for inherited IRAs in bankruptcy, a move to another state that does not offer this protection can endanger inherited IRA assets. IRA owners who wish to provide their heirs with valuable protection should consider naming a trust as beneficiary of IRA assets instead of heirs, who could instead be designated as beneficiaries of that trust.

The Court did not address spousal inherited IRA beneficiaries; however, since a spouse is allowed to roll over an inherited IRA into his or her own account, this may qualify a spousal inherited IRA for the bankruptcy exemption for retirement funds.

Keep this in mind as you plan for the safe, successful transfer of your assets to the next generation.

To you family’s health, wealth, and happiness,
Signature - Marc

Retirement decision-making for baby boomers is very different than it was for their parents, when it was usually just one spouse (Dad) who retired.

More often than not, both spouses work now and must make decisions together on retirement, and each may have very different ideas of what that retirement should look like. Here are 5 important decisions you need to make as a couple before you retire:

Timing. Your financial position and how much (or how little) you enjoy your work are usually the main determining factors regarding when to retire. But couples also need to consider how to maximize their Social Security benefits.

Finances. If only one spouse has been handling the family finances, it’s time for a change. Both spouses need to understand the overall financial situation and how retirement may impact it.

Lifestyle. While one spouse may want to travel more in retirement, the other may just want to lounge around the house. While one may want to move, the other may want to stay put. For this to work, you need to compromise and make decisions together about your retirement lifestyle.

Healthcare. It is imperative that both spouses have good healthcare coverage, either from Medicare and supplemental plans or, if either will continue to work in retirement, from an employer’s plan.

Long-term care. Studies show that most of us will need some long-term care during our lifetimes. We can help you examine the options for long-term care coverage and help you put a plan together that meets your needs.

If you would like to learn more about retirement planning, we need to talk. Please call my office today.