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Category: Estate Planning

What are the Final Estate Questions You Should Ask?

“Tis impossible to be sure of anything but Death and Taxes,” wrote Christopher Bullock in his 1716 book, The Cobler of Preston.

Putting your estate in order will ensure your assets go to your appointed heirs as opposed to the government determining where they will go.

Immediately following the death of a loved one, emotions generally run high, which can lead to confusion and chaos. Delaying making estate planning arrangements may cause unnecessary hardship and grieving survivors to lose portions of their inheritance in probate.

When the inevitable happens and your estate is not in order, circumstances can turn sour. Proper management of your estate may provide you with peace of mind now and give your family the security to manage their future in your absence.

Where is the paperwork?

You obtained life insurance to protect your family and to take care of family members’ needs. You may have arranged your investments and other financial accounts to help your loved ones live more secure futures.

Obviously, if something were to happen to you, your family would need access to your accounts and your documents. They would need to know where to go, what to do, and how to obtain the necessary information.

Prepare now for your family’s future by storing your financial information and your legal documents in a safe place. Inform designated loved ones where and how to access login information and passwords to online accounts.

Here’s a checklist:

  • Do you have a will?
  • Where do you keep it?
  • Where are your health-care documents?
  • What about your other financial paperwork?
  • Are the beneficiary forms accessible?
  • Is your life insurance adequate and is it the appropriate type?
  • Have you made arrangements to cover your estate taxes or other potential fees?
  • Do you have a written letter of instruction?

What about your memorial service?

Discuss with your family the type of memorial service you’d like to have. Ideally, you’d like one that suits your personality and reflects your life.

While the idea of talking about your funeral may seem uncomfortable, once finished, most families find these types of discussions comforting and reassuring.

Here are some planning tips to help you find the best funeral services for your circumstances:

  • Compare prices.
  • Get a quote. Funeral homes are required by law to provide written price information.
  • Resist the temptation—or the sales pitch—to buy services you don’t need.
  • Don’t let your emotions lead you to overspending.
  • Know your rights. States’ legal requirements vary.
  • Shop for memorial services in the same manner as you would with other major purchases.
  • Plan ahead, which allows you to comparison shop.

Where can you find help?

Financial professionals can provide you with insight, guidance, and information to help you overcome the obstacles and challenges that you may confront as you develop one of the most important plans in your life. While most financial professionals are not attorneys, they do work closely with experienced legal and tax professionals to give you the peace of mind to ensure your end-of-life concerns are put in order.

If you have financial questions or are making estate preparations, call us today at 800.929.1001!

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

Tips for Building and Protecting Your Retirement Income

Tips for Building and Protecting Your Retirement Income

The creative team for real estate developers came up with the term “the golden years” in 1959 as part of a pitch to sell homes in the nation’s first large-scale retirement community. Developers of the $2 million golf resort in the middle of an Arizona desert were hoping to sell the idea of “an active new way of life” for people approaching retirement.[i] Their idea worked.

The “golden years” refers to the years of retirement, normally after age 65. Making the golden years truly golden involves having relatively good health, adequate income, and a meaningful life.

While good health and living meaningfully depend on lifestyle choices and sometimes heredity, maintaining or generating adequate retirement income requires prudence and well-laid financial plans.

Risk Management and Growth Strategies for Your Retirement Income

Here are six ways for managing your money in retirement:[ii]

  1. Cut investment expenses and fees. You can potentially increase your income by reducing your outgo. If you have income from mutual funds, look for hidden fees. You may have fees for fund management, transactions, and loads. Get with your financial advisor to examine the lowest-cost options for your investment funds.
  2. Take a look at how your investments are taxed. You may want to consider moving your investments with the highest possible tax liability to tax-deferred accounts and those investments with the lowest taxable liability to taxable accounts. Keep in mind that this may involve transactional fees. Investors should consult with their tax advisor regarding the tax consequences of investing.
  3. Catch-up contributions are one way to build your retirement fund quickly. Annual contributions to tax-deferred accounts are limited, but once you reach the age of 50, you’re allowed to add more into your retirement account. Once you’re 55, you can also make catch-up contributions to your health savings account.
  4. Although Social Security income is only supposed to be part of your retirement income, you can boost your benefits by waiting to apply. Full retirement age, when you’re eligible to receive 100% of your designated benefit, is currently 66 or 67. You get about an 8% increase per year by waiting until you’re 70. For healthy older workers, this is an excellent way to boost your annual Social Security benefit by up to 24%.
  5. Part-time work for retirees is becoming an increasingly attractive option to boosting retirement income. Part-time employment may also improve your quality of life in retirement.[iii]
  6. Paying off your debt before you retire helps to bolster retirement income. Unfortunately, it’s becoming more commonplace for workers to enter retirement with mortgage or credit card debt. If you aren’t retired, you should consider making debt elimination a priority.

If you would like to talk more about your options, please give us a call at 800.929.1001.

Financial & Estate Planning

[i] http://rowleylegal.com/2014/08/03/the-term-golden-years-was-coined-in-1959-as-an-advertising-pitch-for-sun-city/

[ii] https://www.cnbc.com/2018/06/12/4-easy-ways-to-increase-your-retirement-income.html

[iii] https://www.fool.com/retirement/2018/02/04/boost-your-retirement-income-with-these-6-tips.aspx

Unknown Tax Liability on Your Retirement Accounts

Unknown Tax Liability on Your Retirement Accounts

By J. Scott Fain

July, 2018

You’ve worked most of your life to accumulate assets in various forms, likely to some extent in Individual Retirement Accounts (IRA’s). The government has allowed you to defer income into these accounts and to delay paying taxes on them until a later date…the date the funds are withdrawn to fund your retirement or beginning at age 70½ when your required minimum distributions (RMDs) begin.

The upside is you have been able to use those tax dollars to generate growth for yourself and to defer the withdrawals and payment of taxes until you are potentially in a lower tax bracket. On the other hand, this creates some unknowns: what tax rates will be at the time of the withdrawals and what your tax bracket will be…so essentially there is an unknown tax liability on your account.

Some clients have substantial assets and may never need to access the funds other than as directed for RMDs. Other clients rely on these funds for retirement and often do not realize ahead of time the impact of having to withdraw not only the amount of funds they need for living expenses, but also the funds to pay the taxes on those withdrawals.

Further, clients often do not consider that the tax burden on their retirement accounts follows the accounts to the beneficiary and will be paid at the respective beneficiary’s tax bracket and rate.

What are some planning opportunities regarding these taxes on your retirement accounts?

Roth Conversions – Many times parents are in a lower tax bracket during retirement than that of their children.  Further, Georgia provides a Retirement Income Exclusion for taxpayers beginning at age 62, so Georgia retirees often do not pay state income taxes.  Parents with excess assets should consider Roth conversions to allow for payment of taxes now at their tax rates and to provide their children with Roth IRAs growing tax free.

Qualified Charitable Distributions (QCDs) – Many people write checks directly to charities, not knowing there are more efficient methods available.  One of these methods is through Qualified Charitable Distributions (QCDs).  QCDs allow you to make distributions from your IRA(s) directly to your charity of choice, never having to report the funds as taxable income to you.  In many cases, this provides a greater benefit to you than writing a check for a donation directly to the charity and then taking a deduction on your taxes.  By not counting the IRA distribution as income, you may reduce the amount of your Social Security benefits that are taxable, and you may reduce your Medicare premium, as both of these amounts are based on your amount of income.  As a bonus, QCDs count towards satisfying your Required Minimum Distributions (RMDs) which begin at age 70½.

You must have attained age 70½ to be eligible, and QCDs are limited to $100,000 per taxpayer, per year. The distributions can be done on demand or may be setup as recurring on a monthly or quarterly basis.  The distributions generally come in the form of a check made payable to the charity and are mailed to the client’s home address.  It is very important to coordinate with your advisor and your tax preparer to make sure these distributions are reported correctly.

Life Insurance – Another way to address taxes on retirement accounts is through life insurance.  Utilizing a permanent life insurance policy, such as Guaranteed Universal Life (GUL), on the individual or on a joint-life basis allows one to leverage a portion of his or her assets to provide a death benefit to pay the taxes on the account.  It is important to note that the death benefit comes in tax-free.  By utilizing a GUL policy, which is designed to provide the largest death benefit for the lowest premium, on a guaranteed basis, we can forecast the internal rate of return on the policy for a given date of death – i.e. the rate that you would have had to earn on the invested premium dollars to end with the amount of the death benefit on that date.  Assuming good health and insurability, these are generally favorable rates of return. (See also my article on Life Insurance as an Asset Class).  This option can be a good utilization of excess funds from RMDs as well.

Estate Planning – A simple, yet often overlooked, planning opportunity involves charitable bequests.  When selecting assets to leave to various individuals or charities, consider leaving your retirement accounts to charities and other assets to your children or other individuals.  Again, the tax burden on the retirement accounts follows them – whether to your children or to other beneficiaries.  Most other assets will receive a step-up in basis at your death to fair market value, thus they will have no tax burden.  Since non-profit 501(c)(3) organizations do not pay taxes, it is more efficient to leave them your IRAs and to leave your children your investment accounts, real estate, life insurance, etc.  Remember: Beneficiary designations supersede your Last Will & Testament.  Be sure to review your beneficiary designations on your IRAs, life insurance policies, and 401k accounts, and to review any Transfer on Death (TOD) designations, etc. in context of your desired estate plan.

Utilize the Roth Option – As an alternative to deferring taxes into retirement, the Roth IRA allows individuals to contribute funds into the Roth IRA account on an after-tax basis, meaning that you pay the taxes on the income now at your current tax bracket and rate and then defer use of the funds until retirement (after 59½ ).  Under this option, the funds grow tax free going forward until withdrawn.  If necessary, you can withdraw your contributions (not the growth) prior to age 59½ without penalty.  Many 401k plans now offer a Roth option for deferrals.

In summary, there are several planning opportunities that exist and should be considered regarding your retirement accounts and the unknown amount of taxes that will be due and payable by someone at some time.  Contact CapSouth for more information on these concepts and how they might apply to your particular situation.

800-929-1001

CapSouthWM.com

***This article is not intended as specific advice or recommendation. All decisions should be reviewed and considered in the context of your individual situation.  Please contact us for more information on how this information may be utilized under your circumstances.  CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisor.  CapSouth does not provide tax or legal advice.  Please consult your tax or legal advisor before making decisions that may have tax or legal consequences.***

 

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