Articles tagged with: will

Why Do You Need a Will?

It may not sound enticing, but creating a will puts power in your hands.According to the global analytics firm Gallup, only about 44% of Americans have created a will. This finding may not surprise you. After all, no one wants to be reminded of their mortality or dwell on what might happen upon their death, so writing a last will and testament is seldom prioritized on the to-do list of a Millennial or Gen Xer. What may surprise you, though, is the statistic cited by personal finance website The Balance: around 35% of Americans aged 65 and older lack wills.1,2

A will is an instrument of power. By creating one, you gain control over the distribution of your assets. If you die without one, the state decides what becomes of your property, with no regard to your priorities.

A will is a legal document by which an individual or a couple (known as “testator”) identifies their wishes regarding the distribution of their assets after death. A will can typically be broken down into four parts:

*Executors: Most wills begin by naming an executor. Executors are responsible for carrying out the wishes outlined in a will. This involves assessing the value of the estate, gathering the assets, paying inheritance tax and other debts (if necessary), and distributing assets among beneficiaries. It is recommended that you name an alternate executor in case your first choice is unable to fulfill the obligation. Some families name multiple children as co-executors, with the intention of thwarting sibling discord, but this can introduce a logistical headache, as all the executors must act unanimously.2,3
*Guardians: A will allows you to designate a guardian for your minor children. The designated guardian you appoint must be able to assume the responsibility. For many people, this is the most important part of a will. If you die without naming a guardian, the courts will decide who takes care of your children.
*Gifts: This section enables you to identify people or organizations to whom you wish to give gifts of money or specific possessions, such as jewelry or a car. You can also specify conditional gifts, such as a sum of money to a young daughter, but only when she reaches a certain age.
*Estate: Your estate encompasses everything you own, including real property, financial investments, cash, and personal possessions. Once you have identified specific gifts you would like to distribute, you can apportion the rest of your estate in equal shares among your heirs, or you can split it into percentages. For example, you may decide to give 45% each to two children and the remaining 10% to your sibling.

A do-it-yourself will may be acceptable, but it may not be advisable. The law does not require a will to be drawn up by a professional, so you could create your own will, with or without using a template. If you make a mistake, however, you will not be around to correct it. When you draft a will, consider enlisting the help of a legal, tax, or financial professional who could offer you additional insight, especially if you have a large estate or a complex family situation.

Remember, a will puts power in your hands. You have worked hard to create a legacy for your loved ones. You deserve to decide how that legacy is sustained.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

An Inherited IRA

Here are some things to consider when you receive IRA assets.

Be sure you understand your options. When the owner of an IRA passes away, his or her heirs must be aware of the rules and regulations affecting Inherited IRAs. Ignorance can lead straight toward a tax disaster.

Please note that this is simply an overview. Rather than use this article as a guide, use it as a prelude before you talk to a financial services professional well-versed in IRA rules and regulations. Inherited IRA rules are remarkably complex, and that conversation is essential.

First, make sure you have actually inherited the IRA. Your spouse, parent or grandparent may have left their traditional or Roth IRA to you in a will, but that doesn’t mean you have inherited it. In all but rare cases, an IRA beneficiary designation form takes precedence over a bequest made in a will or living trust. (The same applies to annuities and life insurance policies.)1

Your first task is to find the beneficiary form. The financial firm serving as the custodian of the IRA assets should have a copy on file if you cannot locate one (although this is not a given).

What if I’m not the beneficiary named on the form? The IRA assets are destined to go to whoever the primary beneficiary is. One or more contingent beneficiaries are also usually named; if the primary beneficiary is now deceased, then the contingent beneficiaries will inherit the IRA assets.2

What if no beneficiary is named on the form? Then the financial firm supervising the IRA will choose a beneficiary according to its rules and/or IRS guidelines. It may decide that the decedent’s estate will be the beneficiary of the IRA, which is often the poorest outcome in terms of taxation.2

Spousal heirs who inherit a Roth or traditional IRA have options. Here they are, stated as straightforwardly as their complexities allow.

You can have the assets rolled over into your own IRA. This way, you can withdraw those inherited assets based upon your own life expectancy. If you transfer the inherited assets into a traditional IRA you already own, you don’t have to take Required Minimum Distributions from those assets until age 70½. If you transfer the inherited assets into a Roth IRA you already own, you don’t have to take RMDs from those assets at all. (Inherited Roth IRA assets can only be rolled over into Roth IRAs; inherited traditional IRA assets can only be rolled over into traditional IRAs.) Only spouses have this rollover option.3,4

You can transfer the assets into a new Inherited IRA in your name. If your spouse was older than 70½ when he or she died, then you must start taking RMDs from the Inherited IRA by December 31 of the year after the year of your spouse’s death (or pay penalties to the IRS). If your spouse passed before age 70½, you might be able to postpone RMDs until the date when your spouse would have turned 70½.3

You can create an Inherited IRA to house the assets, and then roll over the assets from the Inherited IRA into a new Roth IRA in your name. Yes, you will pay taxes on the Roth conversion. The upside is that the assets will go into a Roth IRA, paving the way for no RMDs, potentially lifelong contributions and tax-free withdrawals.3,4

You can “disclaim” all or some of the inherited assets. If you don’t want or need the money from an Inherited IRA, here is another option. By doing this, the disclaimed inheritance can go to the contingent (or successor) beneficiary named on the beneficiary form. Spousal IRA heirs sometimes do this with the goal of reducing income and estate taxes.3

What choices do non-spousal heirs have? Before discussing that, it is worth noting that non-spousal heirs often get little or no guidance when it comes to Inherited IRAs. Too often, the financial firm overseeing the IRA just asks, “What do you want to do?” Often the IRA heir doesn’t know what to do.

First, ask the financial firm overseeing the IRA to help you retitle it as an Inherited IRA. This has to be done by September 30 of the year following the year in which the original IRA owner passed away. Usually the new title for the Inherited IRA is something like “Mary Jones IRA (Deceased 8/25/2015) for the benefit of Thomas Jones, beneficiary.” This retitling tells the IRS that this is now an Inherited IRA (for which you may name a beneficiary).5,6

This retitling is a key first step to a direct rollover of the Inherited IRA assets – a transfer of those assets from the financial firm the original IRA was held with to the financial firm your investments are held with. If you are a non-spousal IRA heir, this direct rollover (also called a direct IRA-to-IRA transfer) is very important. It gives the funds a chance to have further tax-advantaged growth.

Non-spousal heirs have a basic either-or choice when it comes to withdrawals from Inherited IRAs. They can either take lump-sum withdrawals or Required Minimum Distributions (RMDs).

Usually, your poorest option is a lump-sum withdrawal. If you touch the money at any point – that is, if the IRA custodian cuts you a check for the Inherited IRA assets and you deposit it in a bank account or IRA you have – that is not a direct rollover. That is an indirect rollover, and the entire amount withdrawn is treated as taxable income by the IRS. (An exception: if you cash out an Inherited Roth IRA, it is not a taxable event if the Roth IRA has existed for five or more years.) A direct rollover – in which only the custodian brokerages touch the money as they transfer it from one IRA to another – is not a taxable event.5,6

Taking RMDs is usually the better option. A beneficiary can arrange RMDs from an Inherited IRA, with the following variations:

Does the Inherited IRA contain assets originally held in a traditional IRA? If so, the beneficiary must schedule RMDs over his or her life expectancy if the owner of that original, traditional IRA died after age 70½. If the original IRA owner passed away before age 70½, a beneficiary can either take RMDs based his or her life expectancy or by the 5-year method (whereby the entire Inherited IRA balance is depleted incrementally in five years).6

Does the Inherited IRA contain assets originally held in a Roth IRA? If so, the beneficiary can schedule RMDs over his or her life expectancy or by the aforementioned 5-year method. The age at which the original IRA owner died is irrelevant.6

Generally speaking, the RMDs must start by the end of the year following the year in which the original IRA owner passed away. If you don’t start taking these required withdrawals by December 31 of the following year, you will pay a penalty. Taking smaller withdrawals allows some of the IRA assets to stay invested with tax deferral, and it spreads the income tax liability on the Inherited IRA money over a multi-year period.3

What other things should IRA heirs know? Well, here are three important notes in closing.

Non-spousal heirs cannot contribute to an Inherited IRA. Spousal heirs who elect not to treat an Inherited IRA as their own or roll it over to their own retirement account also lose the ability to contribute to an Inherited IRA.7

You may be eligible for a tax deduction related to Inherited IRA income distribution(s). Income from an Inherited IRA is what the IRS terms “income in respect of a decedent.” This means you can take an income tax deduction for the portion of the estate tax attributable to the Inherited IRA (this is detailed in IRS Publication 590).5

If multiple beneficiaries are inheriting the IRA, you may be able to split the IRA up. Some IRA custodians allow division of Inherited IRA assets among multiple beneficiaries.5

So if you inherit an IRA, study the rules. The more informed you are and the more guidance you have, the better the potential outcome.

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – bankrate.com/finance/retirement/ira-beneficiary-form-mistakes-to-avoid-1.aspx [9/24/14]

2 – irahelp.com/slottreport/there-no-beneficiary-retirement-account-now-what [1/9/14]

3 – fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices [10/7/15]

4 – news.morningstar.com/articlenet/article.aspx?id=716642 [10/7/15]

5 – retirementwatch.com/IRASample1.cfm [10/7/15]

6 – fool.com/investing/general/2015/09/28/the-inherited-ira-its-a-great-gift-but-learn-the-r.aspx [9/28/15]

7 – finance.zacks.com/can-contribute-inherited-ira-5545.html [10/7/15]

 

Grandparents Raising Grandchildren

How can they cope with the financial demands?

When many people hear the word “parents,” they picture a couple in their forties… not a couple in their seventies. The reality is that 6% of kids today live in households headed up by grandparents – a parenting situation that may lead to significant financial stress.1

How can grandparents protect their retirement savings? This should be a high priority, even if the children are old enough to work and earn some income for the household. Grandfamilies are frequently pressured to take on new and large debts. Dipping into your retirement savings or refinancing to pay for education costs, a new vehicle, chronic health care treatments, simply the cost of living – this should be avoided if at all possible, and with a little exploration, ways to lessen the monetary pinch may be found.

Grandparents should feel no shame about asking for help. If the financial burden is too much, then it is time to explore means of assistance.

The cost of rearing a child can be expensive, especially if one or both grandparents work and daycare is needed. A pre-retiree may end up quitting a job (losing household income and retirement savings potential) to care for children full-time.

Can state or local agencies pick up some of the tab for child care? That may be a possibility. Free or subsidized child care services are available in many metro areas for grandfamilies in need (you may want to check out childcareaware.org for some resource links).

Most states have subsidized guardianship programs offering assistance to grandparents providing a permanent home for grandchildren; the American Bar Association (abanet.org) has information on such resources. Grandfamilies may be eligible for the federal Temporary Assistance for Needy Families (TANF) program, which may provide benefits in cash (typically around $150 per month, but every dollar helps), paid child care, Medicaid, money for clothes, and more depending on the state of residence. Even in higher-earning households, a grandparent can still apply for a child-only TANF grant, which takes just the child’s income into account (some minor children do receive Social Security income).1,2

Is there any way to lessen legal fees? LawHelp.org is a worthwhile national link to low-cost or even free sources of legal aid services. (Some custody situations may require only paperwork that can be reviewed by a lawyer at minor expense.)2

Social Security might be able to help. If a grandchild has at least one parent who has died, become disabled, or retired, then that grandchild may be eligible for Social Security benefits. He or she may also be eligible if a caregiving grandparent retires, dies, or is rendered disabled.2

Medicaid coverage for a grandchild may be possibility. A caregiver (read: grandparent) can apply for it on a child’s behalf if the child resides with a non-parent family member. See cms.gov for more.2

What if you can’t afford private health insurance but make too much for Medicaid? Visit insurekidsnow.org, the website of the federal Children’s Health Insurance Program, or CHIP. CHIP can provide relatively inexpensive coverage for basics like immunizations and scheduled doctor checkups, even X-rays and some forms of hospital care.2

In addition, some states have funds in place to aid grandfamilies. Churches, temples, and local non-profit community groups can also prove good resources.

Ideally, guardians should be named in a will. This basic and very important estate planning matter may be addressed in two ways.

If grandparents have legally adopted a child, then they can name a legal guardian for the child should they die before the child turns 18. What if no legal adoption has occurred and the grandparents are merely legal guardians themselves? In that instance, the grandparents have no ability to name a successive legal guardian. The parents would again assume legal custody of the children in the event of their deaths. Should both parents also be deceased, a guardianship decision will be made in court. Grandparents who are not legal parents can still express their guardianship wishes in a will, and a court should value that opinion if those grandparents pass away.2

While there are certain joys to parenting, there are also undeniable stresses. Grandparents who must now parent minor children should know that they are not alone (in fact, the number of grandfamilies in America has doubled since 1970), and that they can explore resources to find help.1

Mike Moffitt may be reached at ph# 641-782-5577 or mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 Citations.

1 – cbsnews.com/news/raising-grandkids-and-going-broke/ [10/29/14]

2 – hffo.cuna.org/331/article/3944/html [1/12/15]