March 27, 2018February 15, 2024

IRA Inheritance Options

Deciding who should inherit your retirement account is an important part of estate planning. You have several options that are available.

When many people pass away, they will still have a lot of money in their individual retirement accounts for a beneficiary to inherit. It is important to decide who that beneficiary will be, in a way that fits your overall estate plan. Contact an estate planning attorney to figure this out.

The IRA can be used to balance out other bequests and can be used to enhance other estate planning goals. Depending on what you decide to do, there are various tax implications, which Morningstar recently discussed in “Who Should Inherit Your IRA?”

Options include:

Spouse – If your spouse is the beneficiary, he or she can roll your IRA into their own. However, it might not make sense to designate a spouse, if they are nearing the age of having to take required minimum distributions and will not need the money.
Child or Grandchild – If they inherit the IRA, then they can stretch the benefits out over their own lifetimes. However, as a practical matter, few do so because they need the money.
Charity – Your estate can get a tax deduction, if you leave your IRA to a charity. It can be complicated, so get expert advice before filing out a beneficiary designation form.
Your estate – There is not much benefit to naming your estate as the beneficiary. However, if you cannot decide on another option, you can do so.
A trust – Ordinarily, there is no benefit to leaving your IRA to a trust. However, if the beneficiary would otherwise be a minor child or unable to manage their finances, it might be necessary to do so.

Reference: Morningstar (March 2, 2018) “Who Should Inherit Your IRA?”

March 16, 2018October 25, 2023

Hidden Costs of Probate

People will often go to great lengths to make sure that their estates do not have to go through probate. They often fail to take little steps and find themselves in probate unnecessarily for other reasons.

Probate is often thought of as something that happens after a person passes away. If a person has not planned to avoid probate, then the estate must go through probate for administration before any assets can be distributed to heirs. What many people do not realize, is that probate courts handle more things than just wills.

Consider the case of one elderly couple in Arizona. The wife suffers from dementia. She had a modest retirement account of $25,000. Her husband wanted to withdraw funds from the account to pay her medical bills. Before he could do that, he had to go through probate court to be appointed his wife’s guardian and conservator. In the process, he incurred $6,000 in attorney’s fees as WLTX19 reports in “Man spends thousands in probate costs to help wife with dementia.”

This unfortunate situation can often be avoided. Estate planning attorneys do more than just help their clients’ estates avoid probate, after the clients pass away. They also help people plan for end-of-life care and what will happen should they ever become incapacitated and can no longer look after their own affairs.

If you have not planned for this, then visit an estate planning attorney and ask about a general durable power of attorney. That document will let you appoint someone to look after your finances, if you become unable to do so.

Reference: WLTX19 (Feb. 15, 2018) “Man spends thousands in probate costs to help wife with dementia.”

March 15, 2018

Treating Children Equally When One Is Not Responsible

Most parents want to treat all their children the same in their estate plans. That can be difficult, when one of the children is not very responsible with financial matters.

Every parent with multiple children knows that despite being raised the same, they all turn out differently. They have different abilities and often very different attitudes about things.

Children also have different levels of financial responsibility. Nevertheless, most parents do want to leave all their children an equal inheritance and they do not want to offend one of them by treating them differently than the others. This was the dilemma of a woman who recently wrote into Market Watch for advice in "My son is responsible, my daughter is in debt — how do I split my estate?"

A common way to do this is to create an estate plan that limits how the trust assets can be used. Provisions can be written into the trust, so an irresponsible child cannot waste any money received on frivolous things. This is unlikely to offend any responsible children, if they use the money in reasonable ways.

Not all families are the same. The best way to get an estate plan that covers your unique family situation, is to visit with an estate planning attorney. Let the attorney develop the best way to distribute your estate, given the needs of your family.

Reference: Market Watch (Feb. 16, 2018) "My son is responsible, my daughter is in debt — how do I split my estate?"

March 12, 2018

Planning for Accident or Illness

It is impossible to know whether you will ever have an accident or have an illness that will leave you incapacitated. However, you can easily plan for dealing with it should it happen.

Most people generally understand that the older they get, the more likely they are to suffer from cognitive decline because of Alzheimer's or some other form of dementia. As people get older, they often begin to prepare for what will happen if their time comes and they become incapacitated.

What people do not think about is that elder dementia is not the only way people can become incapacitated. There are no age requirements for disabling accidents or illnesses. Everyone, no matter their age, should plan for what would happen if they are incapacitated. It is not difficult to do, as TC Palm discusses in "Be as prepared as you can by planning for incapacity."

To get started, schedule an appointment with an estate planning attorney. The attorney can prepare the necessary documents for incapacity.

You will need a general durable power of attorney, so someone else has the authority to handle your day-to-day finances. A health care power of attorney will allow someone else to make your health care decisions. A living will lets you decide ahead of time what medical means can be taken to prolong your life.

Consider taking another step at the attorney’s office and get an estate plan, just in case an accident or illness does more than incapacitate you. A thorough estate plan prepares you and your loved ones for illness and death.

Reference: TC Palm (Feb. 20, 2018) "Be as prepared as you can by planning for incapacity."

December 8, 2016

It Is Time to Review Your Estate Plan

You should review your estate plan anytime something significant changes that could have an impact on your plans. That means that you should be reviewing it now.

Some things do get better with age. However, unlike fine wine and good cheese, estate plans do not improve after aging.

An estate plan can be viewed as a snapshot of a person's financial and life situation at the moment the plan is made. When something changes in a person's financial or life situation the snapshot is no longer an accurate representation. If the change was significant enough, then the estate plan itself could be ineffective.

For this reason, estate planning attorneys suggest that their clients review their estate plans every few years to make sure the plans are still good. Another reason to review estate plans is when there have been legal changes that could affect the plans. There have been recent changes in Maryland law and D.C. law in the past two years that mean residents of those states should review their plans. Maryland has enacted the Maryland Trust Act and D.C. has changed laws regarding wills and trusts as well.

Recent Treasury Department regulatory changes make it likely that your plan needs review as Wealth Management points out in "Remind Clients Importance of Updating Estate Plans."

Take some time to review your estate plan and consult with Profit Law Firm about whether you need to update your estate plan.

Make sure that it still does everything that you want it to do. Ask yourself if there have been any changes to your life and finances that are not reflected in your plan. Then, call your estate planning attorney and ask about any legal changes that have been enacted since you made your estate plan.

Once you are done with that and have an idea what needs to be changed in your estate plan, go to and have the changes made by your attorney.

Reference: Wealth Management (Nov. 21, 2016) "Remind Clients Importance of Updating Estate Plans."

November 23, 2016August 27, 2023

A Bypass Trust Might Still Be Your Best Option

Relatively recent changes to federal estate tax law have made bypass trusts less popular than they used to be. However, they are still good in many circumstances.

It used to be a complicated process for a married couple to get the most out of the estate tax exemption. When one spouse passed away his or her estate tax exemption could be useless if all of the assets went to the other spouse directly. When the second spouse passed away all of the couple’s assets would be considered part of his or her estate and the individual estate tax exemption would be applied.

To get around this couples had to get a “bypass” trust of which there were many types. Essentially, the surviving spouse was bypassed in the estate plan.

The relatively new federal law of spousal “portability” changed this and made bypass trusts less necessary. Now, if the paperwork is properly filled out, a surviving spouse can elect to carry over the deceased spouse’s estate tax exemption and use it along with his or her own later.

This move essentially doubles the estate tax exemption.

However, there are some situations where a bypass trust is still a good idea as discussed by the Poughkeepsie Journal in “Bypass trust works better for many families.”

Many states have estate taxes of their own and they do not all allow spousal portability. For instance, Maryland has a state estate tax and the District of Columbia has a state estate tax. Thus, in Maryland and the District of Columbia a bypass trust is still necessary to take full advantage of estate tax exemptions. A bypass trust can also be used to protect against a surviving spouse getting remarried and having all of the couple’s property eventually ending up in the new spouse’s family. As a result, bypass trusts are a useful estate tool for blended families, learn more here. They can also be used as a great way to include other family members in the estate plan, especially grandchildren.

If all this sounds a bit confusing, do not worry. That is why there are estate planning attorneys and firms like us.

Tell the attorney what you want done with your possessions after you pass away and let the attorney worry about the best way to accomplish that while minimizing the estate tax burden on your estate.

Reference: Poughkeepsie Journal (Nov. 4, 2016) “Bypass trust works better for many families.”

Building Legacies that Last Estate Planning and Elder Law

Tag: District of Columbia Estate Planning