Deciding how you want to be remembered after you’re gone can be one of the most important decisions you make. Do you want your legacy to be judged by your entire life or by a bitter legal battle over your assets? People often avoid the issue of death, but in the case of estate planning, it’s really about focusing on life. You’re no doubt proud of your accomplishments in life, no matter what they may be. Your children, your career or your impact on others lives – these are the types of things that should be remembered. Estate planning remains one of the ways you can protect yourself and your loved ones after you’re gone. With the proper techniques and planning, you can help ensure that you’re remembered for the impact you had on your community and your world. In the event of an accident or other medical emergencies, you should be prepared. In addition to a medical power of attorney and a living will, which spell out what medical treatments you wish to have in the event of an emergency and who will speak for you, you should prepare a will and a financial power of attorney. These financial documents will save your family from much of the heartache and hurt feelings that goes with dividing up estates and making financial decisions. While most Americans are familiar with wills, many still do not have them. Wills can be as complex or as simple as you wish and can directly spell out who you want to receive your assets after your death. As part of creating your will, you will choose an executor, the person who will ensure the stipulations of your will are carried out. Your executor should be financially savvy and have the energy and ability to carry out your wishes. A family member isn’t always the best choice, and you may want to consult with your financial professional on appropriate alternatives. A financial power of attorney grants the responsibility for the financial decisions regarding your estate. You choose who you designate as your representative Your financial power of attorney can also be your medical power of attorney, but it doesn’t have to be. In many cases, your spouse is both, however, it’s important to name a back-up, in case your spouse is also injured or passes away. Wills and a financial power of attorney, along with a living-will and a medical power of attorney, make up the four basic documents and preparations of estate planning. They are, however, only a few of the many options you have when it comes to deciding what your legacy will be. Trusts, insurance and other options exist, as well as several other tax strategies that can be utilized in your estate. Your financial professional can help in planning the entire process.
Estate Planning
Wealth Management ‘ How Wills and Trusts Can Help
Creating a Trust is a safe and secure way of managing your estate so that it is distributed accordingly when you die. A Trust is however a flexible arrangement that relies on the decisions of those whom you trust to deal with your estate in a manner that you would agree to.
A Trust is normally created for larger assets such as property, business or sizeable investment portfolios. The role of the Trustee is not to control or use the assets, rather to ensure that the best possible value is realized and is thus passed along to the beneficiaries at the appropriate time. It may be the case that it is not profitable for assets to be passed immediately to the beneficiaries. Or there may even be a group of potential beneficiaries and the trustee will need time in order to establish who is the most deserving.
A certain amount of tax planning can be done when making a Trust. Tax planning is a crucial way of preserving your wealth for your beneficiaries and getting the best out of your assets when you die. An experienced tax & probate solicitor will be able to advise you on what legitimate methods to use in managing your wealth that will protect it from the effects of income, capital gains and inheritance tax.
The Importance of Making a Will
Changes in society have meant that people’s families are larger and more diverse then ever before. To avoid any complication and confusion a Will should be drafted which deals with all the assets in your estate when you die. A shockingly high percentage of people in the UK still do not have a Will – most research indicates that well over 70% of people without a current up-to-date will. Dying without a will means that your estate will be subject to the intestacy rules and where the deceased’s family cannot be located assets are still referred back to the Crown. Further to this, if your Will is badly drafted for example a DIY Will and it is also not updated, it may leave your estate open to inheritance claims or disputes over your Will.
The consequences of not having a Will can effect those whom you would assume would benefit from your estate, but legally do not i.e. unmarried partners. Conversely you may wish for your estate to only go to your children not your newly married spouse, but they would take half of the estate when you die without a Will.
Your Will should be drafted by a specialist probate solicitor and then should be kept updated on a yearly to two yearly basis. This will enable your solicitor to update your will in line with any changes in tax legislation or the law in general. Not only this, but your circumstances may have changed over time and who you would want to benefit from your Will may differ. Not only this, but your financial status changes over time which should be shown in the Will.
A solicitor will have drafted your Will in such as way that when it comes to winding up your estate, your beneficiaries will get the best return they can. In light of the increasing property prices and decreasing tax thresholds a well drafted Will could help prevent them from paying unnecessary inheritance tax.
Surviving the Loss of a Loved One
One of the most trying experiences in a person’s life is the loss of a loved one. During the grieving process, you may also feel stress associated with needing to make many important financial decisions. In order to feel secure, you need to know that your loved one’s affairs will be properly managed. You will make many serious decisions, which may have a lasting impact on your financial situation.
One unpredictable aspect of sudden loss is that you never know you will react to events until they actually occur. No one can ever be completely prepared to deal with personal trauma compounded by legal and financial concerns, but there are steps you can take to help you find your way through this difficult period. During this time, maintaining structure in your life is essential as you face increased responsibilities.
Estate Fundamentals
There are many aspects of handling the financial affairs of the decreased, and among the most important is settling his or her estate. Almost immediately, there will be matters requiring attention, among them: notification of family and friends, as well as funeral arrangements. Let your family, closest friends, and most trusted advisors help you with some of these details and short-term decisions, but proceed with caution regarding major financial decisions. It’s best to contact an attorney to review the will and handle the legal aspects of your loved one’s estate.
A will typically provides guidance for asset distributions and may also appoint an estate executor, as well as guardians for minor children. A probate court determines the validity of a will and ensures that it is faithfully executed according to your loved one’s wishes. Certain property transfers occur outside a will, for example, assets such as retirement accounts, property in trust, or jointly owned property. These assets will pass to the designated beneficiaries (if any), avoiding probate.
Depending on the size of your loved one’s estate, federal estate taxes may be due. Transfers to beneficiaries other than a spouse that exceed the federal estate tax exemption are subject to estate tax. An unlimited amount may be transferred to a spouse free of federal estate tax. Qualified legal and tax professionals can offer specific guidance.
As you tie up loose ends, another important step will be to notify the appropriate insurance companies (life, home, auto, health etc.) of your loved one’s death. Beneficiaries of life insurance policies will receive death benefits income tax free and, in the event of accidental death, a policy may provide additional benefits.
For heath insurance purposes, if you were covered under your loved one’s group employer plan, you will need to determine what your current and future benefits are. You may need to secure coverage through your own employer, purchase private insurance, or determine whether or not you, and perhaps your family, qualify for COBRA benefits. In certain instances, COBRA, which refers to Consolidated Omnibus Reconciliation Act, provides for continued health insurance coverage for those who meet certain requirements, such as former employees and their families.
Organization will help this difficult planning process go as smoothly as possible. Gather all documents regarding your loved one’s assets, including property deeds, titles, insurance policies, and information for investment, savings, and retirement accounts. Financial and investment institutions often require a death certificate before they transfer assets to named beneficiaries. Other important items to find include a marriage license, birth certificate, and Social Security card. If you are eligible, you will need to file a claim to receive Social Security benefits.
Planning for the Future
During this transitional period, you may face competing demands on your financial resources. If your loved one was the primary breadwinner in your family, it may take some time to assess your financial situation. During the first few months pay bills that need to be paid, but spend cautiously and pay attention to cash flow and liquidity.
As you take things one step at a time, certain deadlines (e.g. timely filing of tax returns) must be considered. Allow yourself to take things as slowly as you can. Your goal should be to develop a sense of command and control concerning financial matters. Align yourself with financial professionals who will have the patience to work with you and your pace, professionals who will help you gain the knowledge and confidence to take the necessary steps.
As you can see, the earlier you begin to educate yourself concerning financial matters, the better prepared you will be to withstand the impact of facing sudden loss. Your family’s quality of life may depend on your financial skills and your willingness to take responsibility for significant financial decisions. With time and planning, things will begin to improve.
Wealth Management ‘ How Wills And Trusts Can Help
Creating a Trust is a safe and secure way of managing your estate so that it is distributed accordingly when you die. A Trust is however a flexible arrangement that relies on the decisions of those whom you trust to deal with your estate in a manner that you would agree to.
A Trust is normally created for larger assets such as property, business or sizeable investment portfolios. The role of the Trustee is not to control or use the assets, rather to ensure that the best possible value is realised and is thus passed along to the beneficiaries at the appropriate time. It may be the case that it is not profitable for assets to be passed immediately to the beneficiaries. Or there may even be a group of potential beneficiaries and the trustee will need time in order to establish who is the most deserving.
A certain amount of tax planning can be done when making a Trust. Tax planning is a crucial way of preserving your wealth for your beneficiaries and getting the best out of your assets when you die. An experienced tax & probate solicitor will be able to advise you on what legitimate methods to use in managing your wealth that will protect it from the effects of income, capital gains and inheritance tax.
The importance of making a Will
Changes in society have meant that people’s families are larger and more diverse then ever before. To avoid any complication and confusion a Will should be drafted which deals with all the assets in your estate when you die. A shockingly high percentage of people in the UK still do not have a Will – most research indicates that well over 70% of people without a current up-to-date will. Dying without a will means that your estate will be subject to the intestacy rules and where the deceased’s family cannot be located assets are still referred back to the Crown. Further to this, if your Will is badly drafted for example a DIY Will and it is also not updated, it may leave your estate open to inheritance claims or disputes over your Will.
The consequences of not having a Will can effect those whom you would assume would benefit from your estate, but legally do not i.e. unmarried partners. Conversely you may wish for your estate to only go to your children not your newly married spouse, but they would take half of the estate when you die without a Will.
Your Will should be drafted by a specialist probate solicitor and then should be kept updated on a yearly to two yearly basis. This will enable your solicitor to update your will in line with any changes in tax legislation or the law in general. Not only this, but your circumstances may have changed over time and who you would want to benefit from your Will may differ. Not only this, but your financial status changes over time which should be shown in the Will.
A solicitor will have drafted your Will in such as way that when it comes to winding up your estate, your beneficiaries will get the best return they can. In light of the increasing property prices and decreasing tax thresholds a well drafted Will could help prevent them from paying unnecessary inheritance tax.
IRA on Death, IRD, Taxes and Stretch IRA
How the IRA distribution is dependent upon the IRD
The unpleasant TRIGGER word in the IRS dictionary is “IRD” [I]ncome in [R]espect of a [D]ecedent, Internal Revenue Code (IRC) Section 691. Income in Respect of a Decedent (IRD) refers to those amounts to which a decedent was entitled as gross income, but which were not properly includable in computing the decedent’s taxable income for the taxable year ending with the date of the decedent’s death [or] for a previous taxable year under the method of accounting employed by the decedent. Pursuant to Sec. 691, the amount of the IRA distribution is included in the gross income of the beneficiary for the tax year when it is received. Simply stated, the government allowed you to post-pone the tax while you were alive. Now, they want to collect, period.
The baby boomer generation needs to understand and master the total significance of IRD, because they have accumulated significant wealth creating Taxable Estates. IRC Sec. 2031 defines and controls the valuation of the decedent’s gross estate to include the value of all assets at the time of the decedent’s death, real or personal, tangible or intangible, wherever situated. A decedent’s estate may include stocks and securities, real estate, business interests, personal effects, annuities, trusts, IRAs, and other qualified plans.
Because of the complex calculation of IRD, the IRA can be included in both the estate tax return and the income tax return of the recipient, thus creating the potential 77% tax-trap of double taxation.
What’s IRD taxable income?
In order to determine whether an item of income is IRD, one must first determine how the decedent would have been taxable in his hands under IRC Section 691(a)(3), then he must consider the accounting method that was employed by the decedent. Generally, cash basis taxpayers only include “actual” cash received or constructive receipt (i.e. Interest on a CD) on the decedent’s date of death. Regardless of the accounting method employed by the decedent, IRD is subject to income taxes on a current basis when the triggering event occurs, generally the actual receipt of the income by the beneficiary.
A thorn on your wealth transfer to your next generation
Rev. Rul. 92-47 holds that a distribution to the “beneficiary of a decedent’s IRA” is IRD (Income in Respect of a Decedent) under Sec. 691.
Pursuant to Sec. 691, the amount of the IRA distribution is included in the gross income of the beneficiary for the tax year when it is received. However, Sec. 642(c)(2) provides that an estate or a trust shall be allowed a deduction for any amount that is permanently set aside for charitable purposes.
Distributions from an IRA are taxable to the recipient. Distributions must begin not later than the required beginning date and continue over the life of the IRA owner [or] over the lives of the IRA owner and a designated beneficiary, IRC Sec. 401(a)(9)(A).
There are ways to mitigate this unpleasant result. Implementation of any large IRA plan requires careful attention for the IRS requirements and estate tax considerations. The simplistic catch-all solution being bandied about is the “stretch-IRA.” This solution requires “stretching” IRA distributions to a much younger beneficiary other than the owner, i.e., over the life of your grandchild, which is longer than your own.
Stretch IRA and Estate Tax Problems
Stretch IRAs are okay for those with no estate tax problem. Stretch IRAs do not work for those individuals with estate tax problems.
Why does the Stretch IRA not work? Because when the stretch IRA passes to a younger heir, estate taxes are due. If the younger heir receives a $3 million dollar IRA, there would be a $1,500,000 estate tax due. Where is the younger heir going to get $1,500,000 to pay the IRS?
The presumption is that the heir will take the $1,500,000 out of the IRA. When the heir takes out $1,500,000 from the stretch IRA, it is taxable income and income taxes are due on that money.
This statement is required by IRS regulations (31 CFR Part 10, §10.35): Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein
To learn more about how to protect your IRA, reduce IRA taxes and have a personal assessment of your portfolio contact Best IRA Rescue. We provide professional services in: precise asset protection systems; tax-free wealth creation systems; advanced income tax tax-deferred strategies; implementation of tax efficient transfers to your next generation elimination of the probate process; and the elimination of the only voluntary estate tax system.
Inheritance Taxes Explained
Reduce inheritance taxes by giving gifts! The inheritance tax is the same thing as the estate tax in the United States, but with a different name depending on the country that you are talking about. The inheritance tax is a tax that is supposed to be levied on the richest people after they die, especially if they have a considerably large estate at that point in time. However, this is not always the case, and in fact, a lot of people find that they are being forced to pay an inheritance tax even though they do not have a particularly large estate. The reason for this is that housing costs continue to increase – and since your house is considered to be one of your assets, it is included in your estate. The inheritance tax is considered by some people to be a highly unfair tax due to the fact that the people who owned the estate had already paid their taxes before death. However, the inheritance tax is still in effect, and it can cost anywhere between forty and fifty percent of your estate over a certain maximum amount. Depending on where you are, that amount will change. Essentially, anybody who has more than that base amount in their estate will be charged 40-50% of any assets that they owned over that amount. One thing that you can do in order to reduce the amount of inheritance tax you end up paying is to check and see if there are any loopholes in the tax law that you can use to your own advantage. One thing that you should consider, for instance, is that some countries will allow you to give a large amount of money to a family member or survivor tax free. If there is anybody who you would like to have inherit a large monetary gift, then you should definitely consider doing this before you die. This might even reduce the total amount of your estate to the point where you will not have to pay any inheritance taxes at all. This also goes for gifts. It is possible to give gifts to as many people as you would like before you die, just so long as the total value of each gift does not exceed a certain amount. By planning ahead and making gifts, you should be able to reduce the amount of inheritance taxes that your estate will owe after your death.
How To Minimize Your Taxes On Wealth
Taxes on wealth or simply wealth tax is the tax levied on the value of wealth owned by a person. As the term ‘wealth’ carries with it a broader meaning, generally capital transfer taxes (which include inheritance tax and gift tax), property tax, and capital gains taxes are some times invariably referred to as wealth taxes.
Taxes on wealth were first introduced in Europe, aimed at reducing the growing wealth gap between the rich and the poor. It was meant to raise revenue for addressing pressing social requirements and also to discourage the attitude towards amassing wealth.
Still, in countries across the world, majority of wealth is concentrated at the hands of fairly small number of people. Ideally taxes on wealth cuts down the disparities in wealth rather than the income, which actually is the determinant factor on how the scales are weighed for the next generations.
Also, taxes on wealth can bring about vertical as well as horizontal equity, which income tax fails to achieve. For example, neither a wealthy person nor a poor one with no income will pay income tax. But the wealthy ones need to cough up wealth tax while the poor need not.
But, as critics puts down, taxes on wealth can actually cause inefficiency by discouraging wealth producing economic initiatives. Also, the revenue generated by imposing taxes on wealth may not be that productive as the theory suggests. The wealthiest form only a small percentage of the population and by nature they are adept at avoiding taxes while remaining themselves within the contours of law.
Taxes on wealth comes in two forms – the capital transfer taxes that are levied when wealth change hands and the annual wealth taxes. Capital transfer taxes can occur either at death – also called inheritance tax – or via donation (gift tax). Some people tend to believe that Capital Gains tax to be a form of taxes on wealth. But in realty, capital gains tax is the taxation on the income obtained on capital and not a wealth tax on the capital.
Ideally, taxes on wealth should not be severe on the tax payers even if they have lots of wealth. Instead, after the minimum slab of no taxation, the taxes on wealth percentage should increase at increments, depending on the value of wealth in dollars. Such a fairer taxation not only increases the revenue but also goes a long way in bringing down the inequality aspect as well.
But with intelligent investing, one can save a lot that other wise goes as wealth tax. But that requires careful thought and advanced planning. May be a tax professional could help one in this regard.
Protecting Assest From Lawsuits and Creditors
Protecting assets from lawsuits and creditors while saving income and estate taxes.
Preserving wealth and hard earned dollars is becoming a great concern and a high priority in this litigious society. Many businesses and individuals who have failed to plan for potential financial difficulties by structuring their assets have found themselves wiped out almost overnight. The risk of exposure to potential lawsuits exists in every aspect of today’s society, including: * Personal injury. * Lawsuits related to auto or home ownership. * Job-related lawsuits, including wrongful termination; breach of contract; malpractice; officer and director liability; workers’ compensation. * Governmental agency exposure, including the IRS and state regulatory departments. * Divorce and remarriage. * Investment-related lawsuits. * Major medical illnesses or elderly care requirements.
The purpose of asset protection planning is to structure legally a client’s wealth and assets in such a manner that they cannot be reached by lawsuits and/or creditors in the event of a large judgment (i.e., lawfully minimize one’s exposure to the possibility of losing one’s home, retirement, savings and other family assets) and, at the same time, save on estate and income taxes.
Protection planning strategies
In general, the following asset protection techniques are used in any plan and can also be used to save income and estate taxes. 1. Trusts: Transfers can be made to a trust that retains legal ownership of the property free from creditors’ claims. 2. Pensions, life insurance and annuities: These assets are generally exempt from seizure by a creditor as they are protected under state exemption laws. 3. Mortgages and secured debt: Secured debt can be used as a technique to tie up the equity in one’s property. 4. Marital property agreements: An agreement can be entered into that will shield at least one-half of the community (husband and wife) from being exposed in the event of a judgment. 5. Corporations: A corporation can be used to limit one’s personal liability exposure. 6. Partnerships: A family partnership, if structured properly, is very difficult for a creditor to enforce a judgment against. 7. Donations and gifts: Transfers to children or third parties, if done properly, can place property beyond the reach of creditors. Note: Each of these techniques offers certain advantages and disadvantages from not only an asset protection standpoint, but also from a tax and estate planning standpoint. Obviously, tax and estate planning is also a large part of estate protection planning.
Protecting a business: Practitioners know that a client’s business can be set up as a corporation to shelter their personal assets from liability. But many professionals are under the false assumption that a corporation will not shield a doctor, attorney, accountant, engineer and other professionals. In fact, the corporation shields professionals from everything except malpractice. Nonmalpractice claims such as accidents, employee wrongful acts and breaches of contract can be significant.
Taking business protection a step further, corporate business assets may be owned by a children’s trust, and the trust may lease the assets back to the corporation. If the corporation is sued, the assets would not be vulnerable because the trust owns them. This arrangement could also save taxes if structured properly, with the lease payments qualifying as a business expense.
Protecting a home: Equity in a home can be a vulnerable asset. An individual who owns a home free of debt can protect it by taking out a mortgage and investing the proceeds in a retirement asset such as an annuity or insurance policy. Under state law, creditors may not be able to touch an annuity or insurance policy, and the home will no longer be vulnerable since it is tied up with a mortgage.
Conclusion
Structuring ownership of family and business assets to provide maximum protection from creditors makes good business sense. If possible, timely action before getting involved in financial or legal problems (as opposed to last minute transfers) makes it easier to withstand a challenge.