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Spring 2019

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Summer 2019: Planning Essentials
For People With Aging Parents:
Long Term Care Concerns

All About Retirement Savings:
New York Legal Life Planning Essentials
For People With Retirement Savings

Check your beneficiary designations!

No matter what your will says, when you pass away, your retirement savings - and all of the tax benefits/burdens of those savings - pass to whomever you have designated as your beneficiary. Be careful not to let your financial institution's default rules govern by forgeting to name beneficiaries or naming them incorrectly.

What happens to retirement assets if you die before they are gone?

Retirement savings are not intended to be an inheritance tool. However, if they have not all been spent by the time of your death, properly structured retirement savings can transfer to your family with significant tax saavings & asset protection.


  • Lifetime Distributions.

    Required Minimum Distributions (RMDs) currently begin when a participant reaches age 70.5. The amount is calculated based on the total of each retirement account and the participant's life expectancy.

  • Distributions to Beneficiaries.

    After an IRA participant's death, minimum distributions to a beneficiary may be able to be stretched out over the beneficiary's life expectancy, assuming the beneficiary has been properly named by the participant before their death. The retirement savings can continue to grow in the tax advantaged account until completely distributed.

  • Distributions to Minor Beneficiaries.

    Funds cannot be given directly to a minor and, therefore, require an adult custodian until the minor is 18 or 21. It may be possible for a retirement savings account participant to name that custodian in their beneficiary designation. This way, the participant can decide who will oversee the funds until the minor reaches the appropriate age.

  • 5 Year Rule.

    If no beneficiary is properly named after the death of a retirement account participant, the retirement savings may need to be paid out in full to the beneficiary over a 5 year period. This can lead to large tax bills for the beneficiary.

  • Naming A Backup.

    Be sure to name a backup in case something happens to your beneficiary AND to allow for more flexible planning after you pass away.

  • Conversion to Roth IRA.

    Sometimes, it is possible to convert an IRA to a Roth IRA. In such circumstances, the participant pays the tax due on the retirement savings and leaves tax free distributions to their beneficiaries.

Protecting Your Children's Inheritance From Being Redirected

Leaving an IRA outright to yout spouse provides significant benefits in tms of withdrawal rules and taxation. Naming your spouse outright often results in a Spousal Rollover (for the benefits) which means that at your spouse's death, all of your returement savings your spouse inherited, will be passed on based on your spouse's beneficiary designations.

In an age of ever increasing life expectancy, if something were to happen to you, your spouse could have multiple decades during which remarriage is possible. Moreover, with elder abuse ont eh rise, there is no way to know who may be influencing your current spouse int eh distant future.

This may lead to yur spouse' later partner, their descendants, or an even more remote individual unconnected to you inheriting your retirement savings rather than your own children or grandchildren. This can be protected against with proper planning. If this is something that concerns you, speak with your legal advisor about protecting against redirection.

Leaving Retirement Assets to a Trust

A retirement trust can be a useful tool if retirement savings represent a significatn percentage of a person's total assets.

Using a properly structured Standalone Retirement Trust, it is possible to achieve:

  1. Creditor Protection which is unavailable if distributions are made to a beneficiary outright or held in an Inherited IRA;
  2. Maximum Tax Deferral(see "Maximizing the stretch" below) over the lifetime of each beneficiary; AND
  3. Protection Against Redirection of retirement savings away from yourintended beneficiaries while continuing to give access to aspouse during their lifetime if desired.

The tradeoff for this protection and growth is potentially higher tax on the distributions. Trusts that hold these distributions to maintain the creditor protection are required to pay income tax on the distributiosn in the same way that the ultimate beneficiary would be required to pay tax on the distributiosn. However, trusts hit the hightes tax bracket at avery low income level (currently approximately $12,000) whereas the intended beneficiary is liekly to be in a lower tax bracket. Building flexibility inta a plan is the best way to handle this situation so that the proper decision can be made at the time of distribution based on the needs and the goals that exist then.

Creditor Protection: IRA's vs. Inherited IRA's

Retirement savings generally enjoy special protection against creditors and in bankruptcy proceedings. However IRA's inherited from the original participant (Inherited IRA's) generally do not receive this same kind of protection.

If you want your retirement savings beneficiaries to have protection from creditors - due to a beneficiary's age, possible accidents, and/or possible failed business vengures - ask your legal advisor about uding a retirement trust to hold and control these assets after your death.

Maximizing the "Stretch"

Many retirement accounts are entitled to a significant tax advantage - tax deferred growth. This meansthat the savigns grow tax free leaving more money in your account to grow over time. then, when savings are withdrawn, they are taxed as income at the recipient's then-current tax rate. Since most of us will earn less in our retirement years (or non-retirement elder years) than we do during our working years, our tax rate willb e lower when we withdraw the funds. therefore, the resulting tax will be less than if we were taxed during our higher rate years.

If properly structured, these tax advantages of a retirement account can be stretched out - not only over the participant's life but even over the lives of later beneficiaries if the participant passes away with undistributed retirement assets.

Tax on Distributions: What to Think About

When making decisions about your retirement savings, it is important to remember that you may be required to pay income tax on withdrawals from such accounts.

Though inheritances are not generally taxed to the beneficiary, the same does not hold true for an inherited IRA. If the funds are in an account whose withdrawals are taxable, the beneficiary of the funds - even if only taking the Required Minimum Distributiosn - will incur a tax bill. Additionally, receivigin the funds can raise the recipient's tax rate.

While these taxes can often not be avoided, they can be appropriately planned for and prepared for with proper guidance from an attorney and/or a CPA.

For More Information about Retirement Savings Planning & other legal life planning tools

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Up next....Summer 2019:
Legal Life Planning Essentials for People With Aging Parents
Long Term Medical Care Concerns

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130 Shore Rd., Suite 288, Port Washington, NY 11050

This bulletin is designed for general information purposes only. The information presented in this bulletin should not be construed to be nor relied upon as legal advice or the formation of an attorney-client relationship.