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,

Some people assume that because they’ve named a specific heir as the beneficiary of their IRA in their will or trust that there’s no need to list the same person again as beneficiary in their IRA paperwork. Because of this, they often leave the IRA beneficiary form blank or list “my estate” as the beneficiary.

But this is a major mistake—and one that can lead to serious complications and expense.

IRAs Aren’t Like Other Estate Assets
First off, the person you name on your IRA’s beneficiary form is the one who will inherit the account’s funds, even if a different person is named in your will or in a trust. Your IRA beneficiary designation controls who gets the funds, no matter what you may indicate elsewhere.

Given this, you must ensure your IRA’s beneficiary designation form is up to date and lists either the name of the person you want to inherit your IRA, or the name of the trustee, if you want it to go to a revocable living trust or special IRA trust you’ve prepared. For example, if you listed an ex-spouse as the beneficiary of your IRA and forget to change it to your current spouse, your ex will get the funds when you die, even if your current spouse is listed as the beneficiary in your will.

Probate Problems
Moreover, not naming a beneficiary, or naming your “estate” in the IRA’s beneficiary designation form, means your IRA account will be subject to the court process called probate. Probate costs unnecessary time and money and guarantees your family will get stuck in court.

When you name your desired heir on the IRA beneficiary form, those funds will be available almost immediately to the named beneficiary following your death, and the money will be protected from creditors. But if your beneficiary must go through probate to claim the funds, he or she might have to wait months, or even years, for probate to be finalized.

Plus, your heir may also be on the hook for attorney and executor fees, as well as potential liabilities from creditor claims, associated with probate, thereby reducing the IRA’s total value.

Reduced Growth and Tax Savings
Another big problem caused by naming your estate in the IRA beneficiary designation or forgetting to name anyone at all is that your heir will lose out on an important opportunity for tax savings and growth of the funds. This is because the IRS calculates how the IRA’s funds will be dispersed and taxed based on the owner’s life expectancy. Since your estate is not a human, it’s ineligible for a valuable tax-savings option known as the “stretch provision” that would be available had you named the appropriate beneficiary.

Typically, when an individual is named as the IRA’s beneficiary, he or she can choose to take only the required minimum distributions over the course of his or her life expectancy. “Stretching” out the payments in this way allows for much more tax-deferred growth of the IRA’s invested funds and minimizes the amount of income tax due when withdrawals are made.

However, if the IRA’s beneficiary designation lists “my estate” or is left blank, the option to stretch out payments is no longer available. In such cases, if you die before April 1st of the year you reach 70 ½ years old (the required beginning date for distributions), your estate will have to pay out all of the IRA’s funds within five years of your death. If you die after age 70 1/2, the estate will have to make distributions over your remaining life expectancy.

This means the beneficiary who eventually gets your IRA funds from your estate will have to take the funds sooner—and pay the deferred taxes upon distribution. This limits their opportunity for additional tax-deferred growth of the account and requires him or her to pay a potentially hefty income tax bill.

A Simple Fix
Fortunately, preventing these complications is super easy—just be sure to name your chosen heir as beneficiary in your IRA paperwork (along with at least one alternate beneficiary). And remember to update the named beneficiary if your life circumstances change, such as after a death or divorce.

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

  1. TaxBill-91024The new tax legislation raises the federal estate tax exemption to $11.2 million for individuals and $22.4 million for couples. The increase means that very few estates (only about 1,800, nationally) will have to worry about federal estate taxes in 2018, according to estimates from the nonpartisan congressional Joint Committee on Taxation.

So, you may be wondering, is estate planning even still necessary?

To put it simply: Yes!

Comprehensive estate planning does a lot more than guard against owing federal estate taxes. Other than taxes, you and your family likely face a range of estate planning challenges, such as:

  • Distribution of your assets. Create your legacy with the help of tools like a trust and/or a last will and testament.
    • If you die without a will, state intestacy laws determine where your stuff goes. You lose control, and the people closest to you may feel hurt or may suffer financially.
    • If your estate plans do not include asset protection strategies, your lifetime of hard work and savings could be squandered needlessly.
  • Cognitive impairment. Dementia, Alzheimer’s disease or other disorders could make handling your own affairs impossible or at least ill-advised. Executing a durable power of attorney (POA), for instance, allows you to choose a person, referred to as an agent or attorney-in-fact, to step in and manage your financial affairs on your behalf. Without this arrow in your quiver, your fate will be left to the public whims of the court, which could appoint someone else—for instance, a public conservator.
  • Medical emergencies. What if you become unable to communicate your preferences regarding your medical care? Naming someone as your health care attorney-in-fact under a Medical Power of Attorney allows him or her to act as your voice for medical decisions. In addition, a living will or advance directive allows you to specify the types of life-sustaining treatment you do or do not want to receive.
  • Specific family situations. Life is unpredictable. You need to consider (and proactively deal with) challenges like the following:
    • If you have minor children, you can name a guardian for them and provide for their care through your estate plan. Without a named guardian, the decision of who raises your children will be left to the whims of a judge. Your children may even end up in foster care while the courts sort your affairs out.
    • If you care for a dependent with a debilitating condition, provide for her and protect her government benefits using tools like the Special Needs Trust (SNT).
    • If you’re married with children from a previous relationship, you need clear, properly prepared documents to ensure that your current spouse and children inherit according to your wishes.
  • Probate. Probate is the court-supervised process of the distribution of a deceased person’s assets. A veritable avalanche of paperwork awaits your loved ones in probate. But it doesn’t have to happen to your family! Through proper planning, you can keep all of your assets—such as bank and retirement accounts, business interests, and the family residence—outside of probate.

Estate Planning Involves Much More Than Minimizing Estate Taxes.
Even prior to the Tax Cuts and Jobs Act, relatively few Americans needed to worry about the estate tax. However, virtually everyone faces one or more of the issues outlined above. Shockingly, a 2016 Gallup poll found that 56% of Americans do not even have a simple will. A 2017 poll conducted by Caring.com found similarly alarming news—a majority of U.S. adults (especially Gen-Xers and Millennials) do not have their estate plans in order.

We can help you add yourself to the list of prepared Americans! Get in touch with our team to set up a complimentary consultation today (just mention this article) and spark the momentum toward your ultimate peace of mind.

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

Marc Garlett 91024

taxes 91024It’s the start of a new year, which means tax season—and this year’s April 17th IRS filing deadline—is just around the corner. Soon you’ll be receiving tax forms such as your W-2 or 1099s, and you’ll start thinking about the life events that could affect your taxes in various ways.

This flurry of tax prep activity is the perfect opportunity to get your estate plan in order, too, and kill two birds with the proverbial stone.

Why? Because as you run down your list of “tax prep” questions, you will find that your answers could also impact your estate plan.

Some things to think about:

  • Did you get married or divorced? Did any of your children or grandchildren?
  • Did you welcome a child or grandchild into your family by birth or adoption?
  • Have any of your children or grandchildren reached the age of majority?
  • Have you dealt with illness or hospitalization? Have you incurred medical expenses?
  • Did you buy or sell a new property or any other major assets, like a vacation home?
  • Did you move to another state?
  • Did you buy, sell, open, or close a business?
  • Have you made any charitable donations?
  • Do you have any new life insurance or pension plans?

After you’ve answered these questions, get to work on gathering the corresponding documentation. That might include deeds, policies, and contracts as well as bills and receipts. Having all of this information handy can help you prepare your tax forms and whip your estate plan into shape.

Here’s how your tax-related changes can affect your estate planning.

If you already have an estate plan, your number one goal is to make sure everything still represents your wishes, taking into account the past year’s events. Maybe because of a change in circumstances, you need new or updated powers of attorney. Perhaps it’s time for an LLC or an update to your living trust, or maybe you need to update your asset spreadsheet. Or, if there have been births or deaths in your family, or, you’ve had a change of heart about who should inherit from you, you also need to update your plan.

If you don’t yet have an estate plan, having this information at your fingertips sets you up for a productive conversation with your estate planning attorney. After reviewing your legacy goals, your lawyer can draw up key documents, such as:

  • A will. Among other things, this document can ensure that your wishes—and not the laws of the state—determine how to distribute your estate.
  • A revocable living trust. In addition to a will, you can establish a living trust, which allows your estate to bypass the potentially long and costly probate process upon your death, gives you extra privacy, and helps to avoid the potentially costly guardianship or conservatorship court process (sometimes called “living probate”) if you become incapacitated.
  • A living will. This document expresses your desires regarding life-sustaining medical treatment, if you become incapable of communicating your wishes.
  • A durable power of attorney. This appoints someone to step in and take over your financial affairs if you are unable to do so, reducing the possibility of hard feelings among loved ones or the need for court intervention.

It’s a new year, and new possibilities are in the air. As long as you’re getting started on your taxes, take a few extra moments to incorporate your estate planning into the act as well. By getting organized in this way, you’ll be well on your way to making 2018 an amazing year.

As Anne Burrell once observed, “Organizing ahead of time makes the work more enjoyable. Chefs cut up the onions and have the ingredients lined up ahead of time and have them ready to go. When everything is organized you can clean as you go and it makes everything so much easier and fun.”

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

Marc Garlett 91024

TaxBill-91024The legal concept of “portability” is still relatively new in estate planning, having become available only after 2011. Since then, it’s been both a blessing (for its tax saving benefit) and a curse (because of rules that seem to be constantly shifting). Fortunately, the IRS has recently clarified some important details about portability.

So how can a portability election benefit you and your family? It could help save hundreds of thousands of dollars of estate and gift taxes for your family if you lost your husband or wife within the last few years. Although the exact mechanics of the tax remain complicated, portability makes it much easier for estate planners and tax professionals to save taxes for you and your family. But be aware, portability is not automatic (even under the new regulations), so you must take action to claim it.

Why should I care?
Portability allows a surviving spouse to inherit and use the estate tax exemption from a deceased spouse. If you’re planning isn’t as good as it could have otherwise been, portability can save hundreds of thousands of dollars of estate and gift taxes. And for those who are proactively planning, it also makes crafting your trust or will much more flexible so we can tailor the plan more towards you and your family’s needs, and less to the needs of the IRS.

What’s new with portability?
Under a new IRS revenue procedure, you now have additional time to take advantage of portability. In the past, you had only 15 months after the death of a loved one to file for portability. Now, you now have two years after the passing of a spouse to file for portability, making this option much easier to use than before.

The IRS is also allowing a unique opportunity to file a late portability estate tax return, as long as you meet certain requirements and have it submitted by January 2, 2018.

On the other hand, if you have a substantial estate (over $5.49 million) or are not a US citizen or resident alien then the traditional 15-month rule will continue to apply to you. Also, like any legal or tax issue, it’s always a good idea to obtain qualified assistance as early as possible so you can have the widest possible set of options and the best likely outcome.

What do I need to do now?
If you lost your spouse after 2011 and haven’t yet spoken with an estate planning attorney about your options, now is the time. As the stock market and housing markets have recovered in the last few years, it might be worth a second look to see if a portability election is right for you and your family, even if you previously decided against one. But whatever you decide to do, do it sooner rather than later. January 2, 2018, will be here before you know it.

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

Marc Garlett 91024

Income TaxesDid you get a holiday bonus from your employer? Or maybe you have a tax refund coming. If so, do you have any of it left, have you already got it spent in your mind, or are you thoughtfully considering how you can best utilize this surprise resource? Annual bonus payments and tax refunds are nice windfalls, which can be used to create more stability in your life. While it is fun to treat such income as “mad money” to be spent on frivolous endeavors, it may be more effective to use it to create more for your long run.

The Best Uses

Paying down a home mortgage is one of the best uses of extra cash. The less principal on which interest is calculated, the more money you will keep for yourself in the long run. Another benefit to making a principal payment is that if it brings the remaining principal to less than 80% of the appraised value of your home, then private mortgage insurance can be dropped, saving you even more money.

Contributing to a retirement account is another excellent use of extra money, if your employer matches your contribution.

If not, consider the possibility of investing your bonus or tax refund into starting your own side business. Here’s a great article about the Side Hustle and how it could help you.

Other Good Uses

Home improvement needs are common for most home owners. Keeping up the condition and value of your home are important long term goals. Letting things go too long typically increases the ultimate cost of repairs. Dealing with them early can pay dividends.

Another good use of bonus funds is to invest in an estate plan if you don’t have one already. Over 50% of Americans between ages 55 and 64 don’t have a will. And 69% of parents have never named legal guardians for their kids. Of the 31% who have, most have made one of 6 common mistakes that means their kids are at risk. Are you part of this group?

Dying without a will, let alone a comprehensive estate plan (and a Kids Protection Plan® if you have minor children), creates complications for your heirs and can leave your family in Court and/or conflict. While you may not relish the idea of investing your bonus or tax refund in an estate plan, the cost to you now would be much less than the cost to your loved one’s later.

If you are thinking about using your tax refund or holiday bonus to protect your family, contact us and ask for the tax refund/holiday bonus special that includes a Family Estate Planning Session + analysis of the best use of the funds for your current situation, as our gift to you, if you are one of the next 5 to call and request it.

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

real estate 91024As our parents and other loved ones age, they may need a little more attention from us. Parents, grandparents, aunts and uncles, or and even neighbors who are aging may want to be seen as strong and independent. Often, however, their abilities to take care of household and financial affairs begin to erode as they get older.

What’s at Risk?

One such example which can have catastrophic consequences is the failure to pay property taxes. A lot of retired people are struggle to make ends meet and may not be able to pay their taxes as they come due. This puts their home at risk because unfortunately, governments have processes in place to collect back taxes by placing liens against the property.

Worst Case Scenario

Different locales have different approaches to filing liens against property, but one of the worst is Washington, D.C. There, the city made a policy change in 2001 that has had devastating effects on homeowners. Prior to that time, the city would sell a lien at auction to individuals who could then charge interest on the amount due until it was paid. If it was not paid, the city could move to foreclose on the property.

The change in 2001 allowed the purchasers of the liens to go directly to court to foreclose on the property they purchased. This attracted predatory lenders from other states that became very aggressive in pursuing the foreclosures. In many cases, people who owned their homes free and clear lost them over unpaid taxes of less than $500. Once investors buy the liens, they can begin charging interest and legal costs, which makes it more expensive for the homeowner to pay off the lien.

While it is true that homeowners have ample time and notice to pay the taxes, even after the liens are sold, Washington’s story is replete with cases of owners with dementia or other serious illnesses. Because of these types of conditions, many owners were not aware of or did not understand what was happening. And without family or friends looking out for them, the predators can have a field day.

What Can be Done?

Thankfully, Washington is in the minority of governments that allow this predatory approach to tax collection. But it points out the need for those of us with elderly family members and friends to pay attention. Respect their pride, but make sure they get the help they need so they are not taken advantage of.

One of the main objectives of our law practice is to keep families out of court and out of conflict. Our lawyers can help you protect those you love by starting with a Family Estate Planning Session. Call our office today, mention this article, and we’ll waive the fee for your session.

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

Income TaxesApril 15 is upon us! It is not only the deadline for filing your state and federal income tax returns, but also the deadline for filing gift tax returns via IRS Form 709.

Many people are confused about the subject of gift taxes. While only two states — Connecticut and Minnesota — have a state gift tax, there is a federal gift tax you may need to be concerned about. Here are some common myths and the actual truths about gift taxes:

Myth 1: The recipient must pay taxes on gifts.

Reality: While the gift giver may face taxes on certain gifts, the recipient usually doesn’t. There are some circumstances, however, when that will not be the case. For example, if you receive a bonus from an employer or tips, these may be subject to income tax. If you are gifted property that has appreciated in value since the giver bought it, you receive the cost basis as part of that gift. But if you sell the property, you will be liable for taxes on the difference between the sale price and the cost basis (what the giver paid for it).

Myth 2: A giver must pay tax on gifts of over $10,000 per year.

Reality: The annual gift tax exclusion rate is currently $14,000 (it increases periodically), and you can give gifts of that amount to an unlimited number of individuals each year without having to pay gift tax. If you give to a charity or your spouse, you can give an unlimited amount without incurring taxes. The lifetime gift tax exemption for 2015 is $5.43 million per person and your annual gifts (so long as they are under $14,000 per person) don’t count towards that number.

Myth 3: Gift taxes can be avoided by loaning money at no interest and forgiving the loan.

Reality: The IRS requires that you treat a loan like a loan, not a gift. You will have to charge a fair market interest rate and put the terms of the loan in writing.

Myth 4: You can always deduct charitable contributions from your taxable income.

Reality: Charitable contributions must be made to a qualified tax-exempt charity, and must be itemized. You can check the status of your charity on the IRS website with its Exempt Organizations Select Check Tool.

If you have questions about gifting strategies or anything else related to protecting and providing for your family, please let us know. We’re here to help.

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

InsuranceIf you have been responsible enough to purchase a life insurance policy as added protection for your loved ones, then you will want to carry that responsible action a little further by protecting that important asset from taxation.

If you are married and have named your spouse as the beneficiary of your life insurance policy, those proceeds will pass free of both income taxes and estate taxes. However, if your children are named as beneficiaries, the proceeds are free of income tax, but they do become part of your taxable estate. Estate taxes have ranged from 35% up to 55% in recent years, so that’s a big bite.

An Irrevocable Life Insurance Trust (ILIT) is a great asset protection tool that shields your life insurance from estate taxes, and when drafted properly, can also be used to protect proceeds from creditors, bankruptcy and divorce.

The best way to use an ILIT is to have the Trustee of the life insurance trust purchase the life insurance directly and pay all premiums. If you already own the life insurance, your ILIT Trustee can either buy the policy for you, or you can transfer it in, by following certain rules we can help you with.

So why is this a good idea? The proceeds from the life insurance are not part of your estate if the ILIT owns the life insurance. Therefore, they are not subject to estate tax upon your death.

If you have not yet purchased life insurance, you should create your ILIT first. Have your ILIT purchase the life insurance. This will circumvent the transfer of life insurance from you to
another party, thus avoiding any difficulties if you do unexpectedly pass away since the proceeds of your life insurance policy would revert to your estate if you died within three years of the transfer.

The ILIT is a phenomenal tool for protecting your life insurance from taxation, leaving behind more for your loved ones.

To put the proper legal and financial protections in place for your family, contact our office to schedule a time for us to sit down and talk. We normally charge $750 for an Estate Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.

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Your holiday season “to-do” lists is already incredibly long, I know, but you really owe it to yourself to answer these six tax questions before year-end:

Should I defer or accelerate income? Will you be in a higher tax bracket next year? If so, you may want to pull more income into this year. Conversely, if it looks like you will be in a lower tax bracket in 2014, you should consider deferring income until January. In addition, it may be beneficial to accelerate deductions by immediately paying any income or property taxes not due until 2014.

Should I take any gains or losses this year? If you are in a lower tax bracket than you expect to be in next year and have gains on your investments in 2013, you may want to consider selling some of your investments to benefit from lower tax rates on those gains.

Should I do a Roth conversion? If you have a traditional IRA, you may want to convert all or some of those assets to a Roth IRA, especially if you are still years away from retirement. You will pay taxes on the converted assets now, but your earnings will grow tax-free in the Roth IRA.

Should I make any changes to my FSA or HSA for 2014? If you have a flexible spending account (FSA) or health savings account (HAS) through your employer and anticipate bigger medical expenses next year, you may want to increase the funds in those accounts which allow you to use pretax money for out-of-pocket medical costs.

Should I be making charitable contributions? If your income increased this year, you may want to think about reducing your taxable income with charitable contributions. You may also consider gifting appreciated securities, which allows you to avoid capital gains taxes while still deducting the full amount of the donation.

Should I be making gifts to family? In 2013, you can gift up to $14,000 (or $28,000 if you are married and your spouse participates) to as many individuals as you choose. This allows you to assist family members while removing taxable assets from your estate. It’s important that if you are giving large gifts, you set it up so those gifts are protected from bankruptcy, divorce and creditors forever. We can help you with that.

If you would like more information about year-end tax-saving strategies, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.