Putnam County Estate Planning & Medicaid

Survey Shows Wealthy Clients Want More Communication in Estate Planning

This survey reveals that wealthy people will not move forward with estate plans unless they have a clear understanding of the plans and feel that their attorneys understand their goals.

More times than one would think, the very wealthy start the process of working with an estate planning attorney, discussing the plan and figuring out how to achieve specific goals. But many stop short of actually executing the plan. What leads this to happen?

In an attempt to understand why some affluent clients choose not to take action, Forbes' article, "Why The Wealthy Do Not Implement Their Estate Plans," describes a survey conducted of 288 wealthy families (defined as those with a net worth of U.S. $10 million or more) who had engaged trusts and estates lawyers to design their estate plans but did not follow through. These folks cited a number of reasons why they didn't act on their estate plan.

Almost 90% said that the estate plan didn't deal with their goals, wants, and objectives. About half think that their estate plan was too complicated. Well, estate planning for the wealthy often requires complex strategies to achieve goals. But this shows that they needed an experienced trusts and estates lawyer to do more than simply create an estate plan. They needed a professional who was equally skilled at gauging the affluent clients' ability to cope with the complexity of the planning and to be comfortable with the plan.

Highly successful people are accustomed to being in charge and in control and the survey reports that these individuals often felt uncomfortable, even nervous, because they did not understand the plans that were created for them. A number of them also shared the plans with trusted advisors, who were not in favor of the plans, making them even more uncomfortable.

The takeaway: an estate planning attorney needs to do more than simply create a plan. They need to understand the client and their goals, wishes and dreams, create a plan to implement those goals, and communicate in plain English how the plan will achieve the client's wishes.

Reference: Forbes (March 22, 2016) "Why the Wealthy Do Not Implement Their Estate Plans"

Your Life Changes – Your Life Insurance Needs Change Too

Most people clean out their closet more often than they review their life insurance policies. You don't wear the same clothes now as you did in your 20s, consider whether your insurance needs should be updated as well.

In "3 ways to choose the right life insurance plan," the New York Daily News invites readers to consider how their lives have changed over the decades, and how their insurance should change too.

Young adults have some pretty straightforward insurance needs like obtaining insurance for their first car, a ring for that special someone, and their first apartment. As we get older, our needs in life and in insurance change. Saving for a down payment on the first house, college tuition for the kids, and then down the road, retirement become new priorities. And many of us will be faced with unexpected events, like illness or death of a loved one, divorce or a spouse who is forced to retire prematurely.

Make adjustments. Life insurance is an important financial tool that should never be a "set it and forget it" plan. For example, a couple has life insurance policies on which they're continuing to pay premium payments and then the husband passes away. Depending on the death benefit and her level of concern for their children's financial state, it is possible that the wife does not need to keep her life insurance policy. She could put the dollars she was paying for insurance premiums in her pocket for her desired benefit. Also, many companies have employer-sponsored life insurance plans for their employees that cover about three years of salary. Depending on the level of coverage, you might consider purchasing additional insurance outside of your employer.

Know when to cancel. Don't be afraid to cancel your policy if it makes sense for your financial outlook. By the time many people retire, hanging on to insurance policies and continuing to make premium payments may not make sense. If you have a total estate value that may exceed the federal estate tax exemption amount at your death ($5.45 million), high net worth individuals may use life insurance to help offset estate taxes more than the exemption amount.

Select the correct plan for your stage of life. Consider premium costs when you are making decisions about what kind of coverage you need. Typically, the amount of coverage available to an individual is capped at ten times the annual salary. There are strict guidelines used by insurance companies to determine coverage, based in part on health and financial guidelines. Your medical records will be reviewed and you will likely be asked to undergo a medical exam before your rates are set.

Reference: New York Daily News (March 22, 2016) "3 ways to choose the right life insurance plan"

Inheriting an IRA for Surviving Spouses 101

When it comes to inheriting assets, few are as complicated as an IRA. The rules for surviving spouses are different than for non-spouses, but rules for both are complex and mistakes are costly.

Perhaps the most important thing to do when you inherit an IRA is your homework. Start by finding out exactly the type of IRA you have inherited, and then find out what kind of beneficiary you are. USA Today's article, "If you inherit an IRA, make a plan before doing a thing," starts with the premise that the person inheriting the IRA is a surviving spouse, and outlines four options.

1. Roll the inherited IRA assets into your own IRA. This has several advantages. The beneficiary can postpone required minimum distributions (RMDs) until age 70 ½, and beneficiaries can use their own life expectancy to calculate RMDs. Plus it's pretty easy. You don't have to keep both an inherited IRA and your own IRA, they can be combined, but the disadvantage is that the beneficiary will (with a few exceptions) have to pay a 10% penalty tax on pre-59 ½ distributions, and RMDs could be accelerated if the deceased spouse was younger than the surviving spouse.
2. Transfer assets into a properly-titled inherited IRA. There are a few advantages to this. For starters, the spouse beneficiary won't have to pay the 10% penalty tax when taking withdrawals from an inherited IRA prior to age 59 ½. Also, you may be able to delay RMDs if the deceased spouse was younger. However, this is pretty complex. The beneficiary will have to keep their own retirement accounts separate from their inherited IRA.
3. Convert the decedent's IRA to the survivor's Roth IRA. This can be done, but you'll want to work with an experienced estate planning attorney to avoid expensive surprises in the future. The surviving spouse might choose this option if they expect to be in a higher tax bracket later in life, but they should also consider the tax brackets of those who might inherit their Roth IRA.
4. Disclaim all or part of the assets. Again, this involves a meeting with an experienced estate planning attorney. The advantages are that you might be able to have assets pass to younger beneficiaries, using their own life expectancies for RMDs, and keep assets out of the surviving spouse's estate. You'd likely choose this option if the estate wasn't set up properly, or if the surviving spouse doesn't need the money. One drawback is it's irrevocable, and there's no control over where the money goes.

The rules are different for a non-spouse beneficiary. You may not roll over the inherited IRA assets into an IRA in your name. You have two options: (i) transfer assets into an inherited IRA—you'll have to take RMDs from the inherited IRA, but they'll be based on your age and life expectancy rather than that of the original account owner; or you can (ii) disclaim all or part of the assets. Remember these points:

• Funds have to be transferred to an inherited IRA by December 31^st following the year of death for non-spouse beneficiaries to "stretch" the plan assets over their life expectancies;
• Custodians or plan administrators don't have to offer to calculate RMDs for inherited IRAs—beneficiaries may be on their own; and
• Non-spouse beneficiaries must usually take RMDs from their inherited IRAs yearly starting the year after the death of the owner.

This is not a do-it-yourself, figure it out and get help later matter. Without the guidance of an experienced estate attorney and great care, the possibility exists for the inherited IRA to be consumed by taxes.

Reference: USA Today (March 15, 2016) "If you inherit an IRA, make a plan before doing a thing"