Your Source for Estate Planning, Asset Protection and Business Transactions for over 35 years!

Splitting Up Retirement Accounts When You’re Splitting Up

Asset Protection, Retirement Planning, Tax PlanningNo Comments

divorce split couple 150x150 Splitting Up Retirement Accounts When You’re Splitting UpCouples in the process of divorce usually want to get all the legal wrangling behind them as soon as possible, when if significant retirement savings are involved, then it pays to pay careful attention to splitting those assets without incurring unnecessary taxes.

Financial experts advise divorcing couples to consider the following when divvying up retirement accounts:

IRA transfers – usually, an IRA transfer is a part of many a divorce settlement, but funds must be transferred in the right way to avoid taxation.  A preferred method is a direct transfer of assets from one IRA to another, but these transfers must be specifically required in the divorce decree, separate maintenance or written agreement incident to a divorce or they will be considered a taxable transfer.  Verify the correct procedure with the financial institution that is custodian of the IRA and make sure the transfer occurs after the divorce is final.  If it is done prior and the original owner of the IRA is under the age of 59 ½, he or she would face the 10% early withdrawal penalty.

QDRO – a qualified domestic relations order (QDRO) can also be used to divide assets without incurring taxes or penalties.  These are traditionally used for dividing 401(k)s and pension plans.  Use percentages instead of dollar figures when specifying the split in a QDRO so one party will not suffer if the assets depreciate.

Beneficiary designations – many an ex-spouse has gotten a financial windfall because his or her ex forgot to change their beneficiary designations.  While many states have laws that terminate an ex-spouse as beneficiary on retirement plans or IRAs that pass via beneficiary designation, a recent U.S. Supreme Court ruling clarified that state laws do not govern federal benefit programs.

For more information on California asset protection, contact our Orange County law firm.

How to Ensure Life Insurance Proceeds Are Not Taxed

California Trusts, Estate Planning, Tax PlanningNo Comments

life insurance How to Ensure Life Insurance Proceeds Are Not TaxedHaving the proceeds of your life insurance policy taxed upon your death is not just bad luck for your family…it’s bad planning!  If you own a life a life insurance policy and don’t have a plan, it will become part of your estate and subject to estate taxes.

If you are married  — and for same-sex couples this means legally married in a state that recognizes same-sex marriage – and you list your spouse as beneficiary, there will be no estate tax since assets can be transferred between married couples tax-free.  However, if the beneficiary is your son or daughter, the policy proceeds become part of your taxable estate and subject to the estate tax.

To avoid having life insurance proceeds taxed upon your death, you can either transfer ownership of the policy to someone else or create a trust and fund that trust with the policy.  However, if you transfer the policy and die within three years of the transfer date, the proceeds will revert to your estate.  Plus, if the value of the policy is more than $14,000 at time of transfer, it will be subject to a gift tax.  And, if you transfer the policy to another person and that person wants to cash it out at any time, you have no control anymore.

A better option is to transfer your policy to a life insurance trust, which becomes the owner of the policy.  Since a trust is not a person, it will not incur an estate tax when the policy pays off.  The proceeds will then go to the person or persons named as beneficiary of the trust.  A caveat here: when you create a life insurance trust, you cannot be the trustee and the trust must be irrevocable (meaning it cannot be changed) or it will not be excluded from your estate upon your death.

For more information on how to save taxes through trusts, contact our Orange County law firm.

Top Ways Married Same-Sex Couples Benefit From Windsor Ruling

Asset Protection, Estate Planning, Tax PlanningNo Comments

same sex 150x150 Top Ways Married Same Sex Couples Benefit From Windsor RulingThe recent U.S. Supreme Court ruling in United States v. Windsor that invalidated the federal Defense of Marriage Act (DOMA) brought with it some substantial estate planning benefits for legally married same sex couples, including:

Marital deductions – allows unlimited transfers of assets between spouses without incurring federal estate or gift taxes.

Portability — allows surviving spouses to add any unused portion of a deceased spouse’s lifetime exemption to their own tax-free exemption.

Gift-splitting — married same-sex couples can combine their annual exclusions and lifetime tax-free amounts to give away up to $28,000 to whoever they want without incurring a gift tax or having it count against the lifetime exclusion.

Community property – allows couples in community property states like California to retitle property in order to get a full step-up in basis to defer any capital gains taxes when a surviving spouse sells property.

Qualified retirement plans – married same-sex spouses can now name each other as beneficiaries for qualified retirement plans.

Rollover IRAs – married same-sex spouses will now be able to take advantage of marital provisions that allow surviving spouses to roll over IRA assets into his or her own IRA and postpone required minimum distributions until the year after reaching the age of 70 ½.

Life insurance – changing individual life insurance policies to policies with survivor benefits will help married same-sex couples maximize death benefits of these policies.

Tax refunds — married same-sex spouses may now be entitled to tax refunds on income, gift or estate tax returns for 2011, 2012 and 2013.  An amended return will be necessary to claim these.

To qualify for all the benefits listed above, same-sex couples must have been married in a state that recognizes same-sex marriage — even if you have since moved to a state that does not recognize same-sex marriage.

If you have questions about how recent legal rulings will impact estate planning for your family, contact our Orange County law firm.

Review Your Estate Plan With These Questions in Mind

Estate Planning, Tax PlanningNo Comments

question2 150x150 Review Your Estate Plan With These Questions in Mind2013 brought a number of significant changes to the tax code, and with the year starting to wind down and the dust settled on the implications of these changes for your estate plan, it’s a good time for you to review your plan with these important questions in mind:

1. Do the estate planning strategies you employed when you created your estate plan still align with your life circumstances?  Review your will, trusts, living will and powers of attorney with this in mind.

2.  Are the people you named as guardians, executors or trustees or guardians still the right people to fill these roles?  If the answer is no, then you should choose others.

3.  Did you set up any trusts for minor children who have now grown up and have children?  You may want to change those trusts to benefit grandchildren now.

4.  Do you have any new property or other assets that need to be placed in a trust?  If so, you will need to transfer those to your trust during your lifetime.

5.  Does your estate plan comply with current tax law?  It should be reviewed keeping in mind the changes that were ushered in earlier this year.

If the answers to these questions mean you need to make a change or two to your estate plan, contact our Orange County law firm.

4 Divorce Mistakes That Can Adversely Impact Your Retirement

Retirement Planning, Tax PlanningNo Comments

Divorce broken heart e1351693513676 4 Divorce Mistakes That Can Adversely Impact Your RetirementBeyond the emotional havoc that divorce can wreak, it can have a particularly devastating effect on the retirement plans of those who divorce later in life.  First, there is precious little time to recover financially when a nest egg for one now has to be split down the middle.

According to a recent Forbes article, here are 4 common divorce mistakes that you should avoid to minimize the financial damage to your retirement plans:

1.  Taking the house over other assets.  A house is a fixed asset that can cost you over time (maintenance, property taxes, etc.) rather than be a source of income for your golden years.  Try not to let emotion overtake good sense when dividing assets in a divorce.

2.  Ignoring tax repercussions of retirement funds.  When you withdraw money from a 401(k) or a traditional IRA in retirement, it is taxed as income.  Withdrawals from after-tax savings accounts like a Roth IRA are not taxed.  So if one of you takes the 401(k) and the other takes the Roth IRA, the one with the Roth IRA will get a larger payout in retirement.

3.  Not realizing consequences of IRA rollover right after the divorce.  Divorcing spouses under the age of 59 ½ have a one-time opportunity to withdraw funds from an ex’s 401(k) without incurring an early withdrawal penalty.  To do this, a QDRO (qualified domestic relations order) needs to be put in place beforehand.  Then, if you need some cash for divorce or other expense, you can get it without paying a penalty.  If you roll over a 401(k) directly into an IRA following your divorce, you cannot withdraw anything without paying the 10 percent early withdrawal penalty.

4.  Dipping into retirement savings because of the tax penalty waiver.  Just because you can take some cash out of retirement savings without a penalty once following a divorce (see #3 above) doesn’t mean you should.  You will need these savings for 20 or more years in retirement, so robbing your nest egg early will rob you of needed funds later on.

To avoid costly mistakes when it comes to retirement planning, contact our Newport Beach law firm.

IRS Says It Will Recognize All Legal Same-Sex Marriages for Tax Purposes

Tax PlanningNo Comments

IRS Logo 150x150 IRS Says It Will Recognize All Legal Same Sex Marriages for Tax PurposesYesterday, the IRS issued a new rule saying that same-sex couples that are legally married in states that recognize their unions would be treated as married for federal tax purposes.  This ruling applies whether or not legally married same-sex couples currently reside in a state where same-sex marriage is legal.

The IRS said the new ruling implements the federal tax aspects of the June 26 U.S. Supreme Court decision in United States v. Windsor that invalidated the Defense of Marriage Act (DOMA).

The new ruling means that same-sex married couples will be treated the same as opposite sex married couples when it comes to federal taxes, including income, gift and estate taxes.  It also applies to all federal tax provisions where marriage is a factor, including employee benefits, personal and dependent exemptions, standard deductions, IRA contributions and claiming an earned income tax credit or child tax credit.

“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” said Secretary Jacob J. Lew. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

The new ruling covers any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country.  The IRS noted that the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally married same-sex couples that wish to file a refund claim for 2010, 2011 or 2012 federal income taxes can do so using the Amended U.S. Individual Income Tax Return, Form 1040X.  Those who want to file a refund claim for estate or gift taxes should use Claim for Refund and Request for Abatement, Form 843.

To learn more about the extension of federal benefits under Windsor, contact our Orange County law firm.

Tips For Choosing A Beneficiary

Retirement Planning, Tax PlanningNo Comments

ira e1346184593476 Tips For Choosing A BeneficiaryWhen you open an investment or retirement account or get a life insurance policy, you will need to designate a beneficiary so the assets can pass as you wish without probate. Most people typically name a spouse, children or close relatives as beneficiaries; however, you are allowed to name anyone you want, including a charity or even a friend.

When choosing a beneficiary, consider the common needs of those closest to you. For example, your children may need money for college or a new business, your parents may need financial support or you may wish to leave something for your grandchildren. You can and should name more than one beneficiary, in case your primary choice should predecease you.

You also need to make sure your beneficiary designation is not in conflict with the instructions you have left in your will. If it does, the beneficiary form will take precedence.

If you want to leave these assets for minor children or those with special needs, you should consider setting up a trust. A trust will not only provide tax advantages, it will also protect assets from creditors or spendthrift relatives. Name a responsible person as trustee so your wishes are carried out.

Contact our Costa Mesa law firm for additional asset protection strategies.

How to Handle Retirement Accounts as Part of Your Estate Plan

Estate Planning, Retirement Planning, Tax PlanningNo Comments

ira e1346184593476 How to Handle Retirement Accounts as Part of Your Estate PlanA recent Wall Street Journal article pointed to the fact that when people fail to pay attention to the best way to handle retirement accounts as part of their estate plan, dire consequences can ensue.

Too often, retirement accounts are ignored, even when they make up a large portion of an estate.  The retirement account owner assumes that all they need to do is name a beneficiary and that will take care of that.

However, if you have established a trust to distribute assets to children over time and named those same children as beneficiaries of your retirement accounts, they will receive all those retirement funds at once, which will circumvent the goal of the trust you spent the time and money to establish in the first place.

Another common error is when people either forget to change the names of beneficiaries on a retirement account after a divorce or they name a new spouse with no provision for children from a prior marriage.

Married couples should also revisit the beneficiary status of their retirement accounts because of the relatively new portability rule, which allows spouses to share their estate tax exemptions.

In addition, those who plan to leave assets to charity should consider doing so from their retirement accounts, since individuals who inherit IRA assets will be subject to income tax while a charity will not.

To make sure your retirement accounts are planned for properly in your estate plan, contact our Orange County law firm.

Smart Ways to Give While You Live

Estate Planning, Tax PlanningNo Comments

money gift 150x150 Smart Ways to Give While You LiveMany parents are justifiably concerned about what the last recession did to their children’s finances, and are looking for smart ways to help without hurting themselves or their children tax-wise.  An article at last week provides these tips:

Cash.  You can give anyone up to $14,000 per year in cash without incurring any gift taxes, so if you and your spouse decide to provide a cash gift to a child, you can give twice that amount — $28,000 – as a married couple.  If your child is married and has children, you can give to his or her spouse and each child as well.  Be sure to discuss this with your financial advisor before gifting cash.

Stock.  If you own stock that has appreciated significantly, you can give it to an adult child.  When they sell it, they will pay capital gains taxes but only on the amount you paid for it.  If you’re in a high tax bracket and have appreciated stock that also pays a good dividend, your children may be able to benefit from this income by keeping the stock.

Direct payments.  You can pay for tuition or medical expenses on behalf of a child if you pay the institutions directly, and the $14,000 limit does not apply.  To qualify for the tax exclusion, be sure you discuss this strategy with your estate planning attorney.

However you decide to help your children, be sure you plan first.  Contact our Newport Beach law firm for help.

Pre-Planning Tips to Cut Next Year’s Tax Bill

Asset Protection, Tax PlanningNo Comments

tax wallet empty 150x150 Pre Planning Tips to Cut Next Year’s Tax BillToday is the deadline to file your income taxes, and perhaps you have found yourself wishing once again that you had done more to cut your tax bill.  If that’s the case, here are some tips for what you can do now that will save you money next year:

Max out 401(k) contributions ($17,500 if you’re under 50, $23,000 if you’re over 50).

If you’re self-employed, invest in an individual 401(k) plan – you have until Dec. 31 to set one up and until April 15, 2014 to fund it.

Max out your health savings account contributions ($3,250 for an individual, $6,450 for a family; those over 55 can contribute $1,000 more if they are not yet enrolled in Medicare).

Make contributions to a 529 college plan to get a break on state taxes.

If your income will be less this year, do a Roth conversion.

Sell off the losers in your taxable investment accounts for a capital loss that can offset up to $3,000 of ordinary income on your tax return.

Make charitable donations at the end of the year with a credit card – you get the credit for the donation in 2014, but don’t have to pay until 2013.

Donate household items – you can take a deduction of up to $5,000 without a formal appraisal for the value of the donated items.

Contact our Newport Beach law firm for more tax-saving asset protection strategies.

« Previous EntriesNext Entries »