Month: January 2017

Forget About The Estate Tax. Capital Gains Tax Is The New Tax To Avoid

monopoly-capital-gains-tax-300x225Let’s face it, most families simply won’t have to worry a lick about the federal estate tax. That’s because about 99% of unmarried people don’t have an estate that exceeds $5.49 million. And more than 99% of married couples don’t have a combined estate of $10.98 million. So, for most families, have no worries about trying to avoid the 40% federal estate tax but fail to spot this unintended tax issue of the Capital Gains Tax.

But almost every family who engages in estate planning has assets that have appreciated in value. That means there is the potential for capital gains tax at the federal level when those appreciated assets are sold.

Example: Let’s say Dad bought stock in ABC Co. for $5 per share over the years. Now, that Dad is 76 years old, ABC Co. stock sells for $60 per share. That means that there is $55 of gain in each share of stock that Dad owns. If Dad sells the stock during his lifetime, he’ll get hit hard with a capital gains tax.

What Are Options That People Consider When Attempting to Protect Their Estate from Nursing Home Poverty?

We’ve talked to many Wisconsin families about things that they had done in an effort to protect their money from all being sucked up by the nursing home costs which can exceed $100,000 annually. Lots of mistakes are being made by people who don’t truly understand the intricacies of the Wisconsin Long Term Care Medicaid law and regulations. While you won’t get all the answers in this post, you’ll learn what some of the common mistakes are. So… here are options that just don’t work. …

How Are Retirement Plans Handled In An Estate Plan?

Retirement plans, including IRAs, 401Ks, 403Bs, and 457As, are not controlled by common estate planning documents such as wills and revocable living trusts. They transfer to heirs by a beneficiary designation. So whoever is named as the beneficiary when you initially signed that plans document, is the person that will receive the value in the account when you pass away.

This lack of control sometimes can be problematic, especially when an individual retirement saver has designated a beneficiary and has forgotten to keep those designations up to date. The plan documents will control where the money goes and your last will and testament will have no effect because beneficiary designations avoid probate. Your retirement plans will also not be controlled by a revocable living trust because the plans are not trust property; they are individual property.

Is The Title of A Retirement Plan Going To Be Transferred To A Trust Upon Someone’s Death?

No, what happens is that beneficiary is contacted by the custodian. For example, you have an IRA in a brokerage account. You pass away, and hopefully, you have designated beneficiary’s, for example, your spouse as the primary beneficiary. The broker or your financial advisor calls up your spouse and says, “You are the designated beneficiary of this retirement account there is $100,000 in it and you have a few options for distribution. What would you like to do? Would you like to pay the income tax obligation now, cash it out and do whatever you wish with the money, or do you wish to inherit this IRA and stretch out the tax obligation over your lifetime keep it as your own retirement fund?” Now there are different rules as to whether spouses inherit or if children inherit, but that’s effectively what happens when a custodian handles the transfer to the designated beneficiary.

Why Are IRA Assets The Biggest Surprise People Get In Estate Planning?

A lot of people do not understand the landscape of how retirement plans pass to beneficiaries. They do not necessarily understand the particularities and technicalities of how one inherits and their choices presented by fund custodians. IRAs have only been around since the mid-1970’s and we are only beginning to see multiple generations inheriting them. The lifetime distribution option (stretch IRA) is an even more recent addition to the mix so the idea of not just simply cashing it out is relatively new. Whenever you have these options and choices, people just aren’t savvy enough. …

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