Florida Estate Planning

Estate Planning/Beneficiary Designations

Proper planning can set your estate, your assets, and your family in line for a smooth transition but improper or incomplete planning can bring untold hardship, especially if the matter ends up in court. Courtesy of Bill Singer’s blog through Forbes, here’s another sad story to add to the file of otherwise avoidable legal woes. The entire story and Singer’s commentary are worth reading, but in essence it is the story of Financial Industry Regulatory Authority (“FINRA”) Arbitration 10-02435 (May 9, 2011), or the shortsightedness of one Newman Trowbridge, Jr, Esq..

Mr. Trowbridge opened an IRA in 1994 and named his then wife as beneficiary of the account. Then two things happened: (1) his IRA was taken over by Capital One and his account was reassigned to a new broker (Rick Schenck, Sr.) and (2) he and his then wife underwent what was apparently a terrible and protracted divorce. Mr. Trowbridge later re-married, put his life back together, and continued with his IRA with gusto (he quadrupled the balance) until he suddenly and tragically passed in 2009. At that time, Trowbridge’s estate went to his wife along with all the various accounts for which he named her as beneficiary, but the IRA went to his ex-wife. The story is familiar and you probably saw it coming, but Trowbridge had failed to reassign the beneficiary of his IRA and it has remained under his first wife.

Unfortunately, the story doesn’t end there since the recent widow had attempted to reclaim the IRA. She went so far as to present the broker with a court order stating that all accounts that make up the decedent’s estate must be transferred to the heirs of the decedent, but that didn’t work since the IRA isn’t a part of the estate to begin with. The broker defaulted to the named beneficiary, or the ex-wife. In response the widow tried suing on counts of negligence, amongst other things, since the broker had not carried out his duty by advising the late Mr. Trowbridge to rename his beneficiary. The suit is why this is the story of FINRA Arbitration 10-02435, and why it is all the more bitter since the widow lost the suit and it was held that the broker did his job (the case was even removed from his record.) Instead, the FINRA arbitration placed the blame squarely on Mr. Trowbridge, adding insult to injury since, we can presume and the court admitted, he probably didn’t intend to hand the IRA over to his ex-wife.

The lesson is three-fold. Firstly, you must adapt your plans whenever you undergo a life-change, like renaming beneficiaries after divorces and marriages. Secondly, planning is about making sure your affairs are in order before those plans are needed, that is, fully fleshing out your plans early so an unexpected death doesn’t keep you from finishing the most important details. Finally, it’s a pretty tricky world when you try to undo the damages of incomplete or poor planning, and often an unforgiving one for your surviving family members and loved ones.

 

ESTATE PLANNING / INHERITANCE PLANNING

 

From Forbes.com (March 23, 2011) “The Inheritors”

 According to recent research from The Center for Retirement Research at Boston College, 70% of baby-boomer households will receive inheritances worth a total of $8.4 Trillion. With an average of $300,000 for most inheriting households, and an average of $1.5 million for the wealthiest inheritors, the better part of a generation is expected to see a nice bump in their assets. The question, then, is what to do about it.

Ashlea Ebeling of Forbes recently approached the topic with a number of considerations, from warnings to ideas.

Consider Keeping it Separate. The first thing to take stock of is how your state handles inheritances. Most states consider an inheritance the separate property of the person who received it, as long as they keep it separate. So think carefully before you put the money into a joint account – or use it to make major improvements on a jointly owned home, for example. Keeping an inheritance separate can provide a level of asset protection -- by keeping it separate you also shield it from loss due to your spouse’s debts and/or lawsuits.

Special Treatment for Retirement Assets. If the inheritance is an IRA then you can use it to stretch out the withdrawals over your own life expectancy and in this way maximize the tax benefit on those funds. Don’t try to take the money out and redeposit in your own IRA. That’s not allowed. Instead, the IRA should be renamed. If you want to move it from one custodian to another, do so in a “trustee-to-trustee” transfer. In certain circumstances, you may even want to “disclaim” the account and give it to your children if you don’t need it.

Review Your Own Estate Plan. Whatever the inheritance, it is now part of your estate. A sizable inheritance could push you into estate tax territory. Even if you aren’t in danger of estate taxes, you will still want to review your current plan to account for the inheritance assets.

In the final analysis, receipt of an inheritance is one of those lifetime events that calls for proper assessment and planning. You can learn more about the estate plan review process on our website. You also can review a checklist of other life events that may alter your estate planning needs on Page 3 of this month’s issue of our estate planning e-newsletter.

 

Estate Planning IRA Assets

 If you have substantial assets in an IRA – whether a Roth or a traditional IRA – you’re wise to pay attention to how those assets might pass to your spouse or other heirs in the event of your death. Christine Benz of Morningstar Advisors last week wrote a small cache of common wisdom on the subject in the forms of “do’s and don’ts.”

What should you do with your IRA?

• Check with your estate planning attorney before naming your beneficiaries. Remember, your beneficiary designation(s) trump whatever might be in your will, so make sure your estate planning documents and your beneficiary designations work together. An estate attorney also can advise you on the most tax-efficient uses of your IRA assets and warn you about ill-conceived designations, such as naming a minor child or your “estate” the beneficiary of an IRA.
• Consider making a charity the beneficiary of your IRA. Depending upon your situation, this could be a tax-savvy way of supporting your favorite cause.
• Consider whether you should convert a traditional IRA to a Roth account. Again, depending on your individual situation, this could make your retirement assets work even harder for your heirs.

 

 Morningstar’s top list of Don’ts:

• Don’t fail to name beneficiaries for your IRA assets. What happens if an IRA has no beneficiary designation at all? It all depends. If that is not a good answer for you, then be sure you name a beneficiary.
• Don’t neglect updating your beneficiary designations after life-changing events. Major life events, such as marriage, divorce, the birth of a child or the death of a loved one may require changes to your beneficiary designations. Plan to review those designations on a regular schedule.
• Don’t name a minor child as the beneficiary of your IRA. Minor children cannot be named beneficiaries of life insurance policies, retirement plans, or annuities. If you’d like to leave IRA assets to a minor, check with an estate attorney about setting up a trust or a uniform transfers / gifts to minors (aka UTMA / UGMA) account.