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Category Archives: Estate Planning

When Planning for the Future, Don’t Overlook Your Estate

Just like disability insurance protects us in the event of a career-altering illness or injury, estate planning can help protect your family in the event of incapacity or death. Estate arrangements should be something every doctor considers in his or her financial plan.

At the highest level, an estate plan allows a living person to arrange for things such as healthcare directives in the event of incapacity and the guardianship of minor children and disposition of assets upon death.

An estate plan can contain a variety of documents depending on complexity, including powers of attorney for healthcare or finance, a basic will and/or a living trust. Ultimately, an estate planning attorney is the person who determines which documents are the best for each situation.

Estate plans can become critical for an individual or a couple with young children, allowing them to name guardians for the children and a trusted individual to receive resources to provide for the care of those children. The same applies to those who have children with special needs.

The distinction between guardians and trusted individuals is an important one, as the person or persons you select as guardians may not be the best money managers—and they don’t have to be. You can be as specific as you want when you determine who will manage the money and support for your children.

We recommend updating your estate plan every three to five years, or when a specific life event occurs such as the birth of a child. A financial professional and an estate planning attorney will be your best resources for adjusting and updating your plans.

Is it time to update your estate plan?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.

Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

Planning Your Legacy: Where to Start

By Elaine Floyd, CFP ©

As a generation, baby boomers are starting to wonder how we can leave our mark upon the world. What, besides material possessions, can we hand down to the next generation? How do we capture and define the wisdom and values that we’ve cultivated over decades of experience? How do we pass these precious assets down to our children, grandchildren, and the world at large?

Anyone who’s lived a full, rich life has the potential
to leave a vast legacy in the form of stories, letters,
photographs, and teachings. But where do you start?
How do you begin to harness the knowledge and
experience of your life and arrange it in a form that will
live on after you’re gone?

What is legacy?

A person’s legacy can take many forms. It could be
as simple as a carefully crafted letter to loved ones
expressing the values and sentiments you hold
dear. It could be a series of scrapbooks containing
photographs, mementos, and handwritten notations.
It could be a collection of recipes, or a series of short
stories, or a video in which you talk about your life and
what you’ve learned.
You might start by asking what part of yourself your
family would want to hold onto after you’re gone.
Do you possess knowledge of your family’s heritage
that isn’t written down anywhere? Write it down. Do
you have a special skill, such as cooking, gardening,
woodworking, or sewing? Make a video or write out
instructions or, better yet, schedule a series of “classes”
in which you teach grandchildren how to perform one
of these valuable home arts. Did you learn important
lessons through adversity earlier in your life? Tell the
story of what happened and what you learned from it.
You have a wealth of knowledge and experience that
will someday be gone—unless you take steps now to
preserve it.

Start simple

If the idea of capturing the whole of your life and
making it accessible to future generations seems
overwhelming, start small. Start with the facts about
you and your family. Draw a family tree or list the
names of grandparents, great-grandparents, and other
ancestors as far back as you are able to go.
Write down key facts about your life, including when
and where you were born, where you went to college,
details of your first job, when you got married, and
other milestone events. Make a list of the important
people in your life and how they influenced you. This
information alone will be valuable to your family
members, but it can also serve as a framework for going
deeper into each event or relationship for the purpose
of crafting stories and identifying life lessons to be
shared with loved ones.

Go deep

Now choose an event and make some notes about
it. Don’t worry about perfect writing. You’ll polish it
later. Just get the content down. Start with the facts.
Then jot down your thoughts and feelings about what
happened. What did you learn from it? How did it shape
your life? What do you want others to know about your
experience? What can they learn from it? Once you open
the floodgates, the memories and thoughts will flow.
Do not edit them. Just get everything down. No one will
see this yet. Consider it raw material for your legacy.

Create your legacy

Your legacy might be one or more of the following:

  • A series of short stories or essays of 500-1000 words
    each in which you write about an event, a person,
    an idea, or a value you hold dear. Short stories may
    be easier for your loved ones to digest than one
    long, rambling memoir. Easier for you to write, too.
  • A video of you telling a story or imparting a piece of
    knowledge based on something you’ve learned or
    experienced in your life.
  • A letter or series of letters written to each child,
    grandchild, or other person close to you in which
    you recall shared experiences and express your
    feelings for that person.

Build new memories

In addition to the tangible items that capture a piece
of who you are on paper or video, your legacy also
includes the memories of you that your loved ones
hold onto. Going forward, build new memories by
spending more time with the people you are closest to
and work on making those experiences memorable. At
future family gatherings continue to recall stories from
your times together (“Remember when…”) in order to
reinforce those memories.

Building a legacy that lets loved ones know more about
who you are and how you lived is the closest thing
to being immortal. It’s the most valuable thing you
can leave behind because it’s almost like you’re not
leaving at all. By sharing the content of your life you
will continue to live on in the hearts and minds of your
loved ones long after you’ve left this earthly plane.

 


 

Elaine Floyd, CFP®, is the Director of Retirement and
Life Planning, Horsesmouth, LLC., where she focuses on
helping people understand the practical and technical
aspects of retirement income planning.
Devin Kropp is not affiliated with Larson Financial Group.
IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

 

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.
Copyright © 2018 by Horsesmouth, LLC. All Rights Reserved

The Top 7 Questions for an Effective Beneficiary Audit

By Denise Appleby, APA, CISP, CRC, CRPS, CRSP

The question of who inherits your assets becomes more important as you age. A good beneficiary audit can reassure you that the right people will inherit the right accounts and that the applicable tax and investment issues are carefully considered.

When was the last time you did a beneficiary audit for your retirement accounts? If you don’t remember, have never done one, or haven’t done one in more than a year, now might be a good time.

A beneficiary audit is one of the most critical check-up processes for IRAs and other retirement accounts, as it ensures that people you want to inherit your retirement accounts actually do.

A good beneficiary audit can reassure you that your “designated beneficiaries” (i.e., individuals or qualified trusts named on the IRA agreement or employer plan document) avoid the limited distribution options available to “nondesignated” beneficiaries (i.e., non-person entities or beneficiaries not named on the form).

The effectiveness of a beneficiary audit largely depends on the questions that are posed to you – the account owner.

Ask the Right Questions

Sometimes it helps to use a Beneficiary Audit Form so you can easily identify your accounts and beneficiaries:

Medical School Loan Repayment

Source: Denise Appleby, APA, CISP, CRC, CRPS, CRSP

But identifying the accounts is only the beginning. This is also a good time to make any changes you’ve been considering. Ask yourself these questions:

1. Have you completed a beneficiary designation form for all of your retirement accounts?

Usually, you, as the account owner, would provide the beneficiary information when you established the IRA or retirement account.

But there are other factors to consider:

  • Some IRA owners do not complete the beneficiary designation section of the IRA agreement because they intend to complete a separate beneficiary designation form at a later date.
  • Some IRA owners mistakenly think that when they transfer an IRA to another IRA, the beneficiary designation carries over to the new IRA.
  • When it comes to employer-sponsored retirement plans (qualified plans, 403(b) plans, and governmental 457(b) plans), the beneficiary designation is not part of the plan establishment or account-opening process. Instead, participants are usually provided with a “benefits package,” which includes forms and instructions for designating the beneficiaries of their retirement accounts and insurance policies.

If a beneficiary designation form is not completed for a retirement account, the default provisions of the IRA agreement or employer plan document apply.

The default provisions might not be consistent with your objectives and could adversely affect your beneficiary’s distribution options.

2. When was the last time you reviewed/updated your beneficiary forms?

Beneficiary designation forms should be reviewed often. The ideal frequency will vary based on your needs. For some, an annual review may be necessary, while a review every three years could be enough for others.

You should also review your beneficiary forms whenever there is a life event that could affect your beneficiaries. This includes marriages, divorces, new family additions (births and adoptions), and deaths.

Important note about divorce: Some plan documents include provisions that automatically remove a former spouse from the status of beneficiary when the divorce is effective. Some do not.

A new beneficiary form should be completed regardless of whether you want your former spouse to remain as beneficiary of the account. Completing a new beneficiary form will ensure your wishes are clear, which could help prevent friction among your heirs.

3. Do all of your retirement accounts have designated beneficiaries?

While every designated beneficiary is a beneficiary, not every beneficiary is a designated beneficiary. This distinction is important for purposes of determining the life expectancy over which distributions from an inherited account can be stretched.

An account has a designated beneficiary if the primary beneficiary is a person or a qualified trust named on the form. This determination is made on Sept. 30 of the year that follows the year of your death.

If only individuals and/or qualified trusts are beneficiaries on the Sept. 30 deadline, the account is treated as having a designated beneficiary.

If a nonperson, such as an estate, charity, or nonqualified trust, remains as a primary beneficiary on the Sept. 30 deadline, the account is treated as not having a designated beneficiary.

If a retirement account does not have a designated beneficiary, it could shorten the period over which distributions from the retirement account can be stretched. The following is a summary of the distribution options available to the various types of beneficiaries:

Medical School Loan Repayment

Source: Denise Appleby, APA, CISP, CRC, CRPS, CRSP

An individual can be a designated beneficiary only if she is a beneficiary on record at the time of your death or becomes a beneficiary under the default provisions of the plan document.

4. Have you named contingent beneficiaries for all of your retirement accounts?

A contingent beneficiary steps into the role of primary beneficiary in the event the primary beneficiary dies before you do, or if the primary beneficiary properly disclaims the retirement account. If the primary beneficiary disclaims only a portion of the account, the contingent beneficiary becomes the primary beneficiary for that amount.

Generally, a contingent beneficiary becomes a primary beneficiary only if there are no remaining primary beneficiaries. If there are two primary beneficiaries and one dies before you or disclaims his share, the remaining primary beneficiary usually becomes the primary beneficiary for that share.

If a retirement account does not have a contingent beneficiary and the primary beneficiary predeceases the account or disclaims the account, the default provisions of the governing plan document apply.

5. Are the default beneficiary provisions for your retirement accounts consistent with your objectives?

Ideally, all retirement accounts would have primary and contingent beneficiaries when the account owners die.

But, in the real world, beneficiaries are often determined under the default provisions of retirement accounts. The default provision would also apply if all primary and contingent beneficiaries properly disclaim their share of the account. The default provisions should be considered as part of the beneficiary audit because they activate when “what if” scenarios become “what is.” For example:

  • What if you did not get around to replacing primary beneficiaries who died and you are not survived by any other named primary or contingent beneficiaries?
  • What if your account is part of a mass transfer, under which the new beneficiary’s forms are mailed to you, but you missed a line or forgot to return them to the custodian/plan sponsor?
  • What if the beneficiary designation form is determined to be invalid?

For these and other what-if scenarios, consider whether the default beneficiary provisions are acceptable. They include, but are not limited to:

  • Surviving spouse. If none, the surviving children
  • Per stirpes. If none, the decedent’s estate
  • Surviving spouse. If none, the surviving children; if none, the decedent’s estate
  • Surviving children. If none, the decedent’s estate
  • Decedent’s estate.

For IRA owners with multiple options, the default beneficiary provisions should be one of the factors that determine which IRA is chosen.

Because employer-sponsored retirement plans are governed by one plan document, there is no flexibility. It is even more critical, therefore, that beneficiary forms for these accounts are updated when needed.

6. If you named a trust as your beneficiary, is the trust qualified?

Generally, only an individual can be a designated beneficiary. An exception applies to a trust, if the trust is qualified. Under this exception, the life expectancy of the oldest beneficiary of the trust is used for required minimum distribution (RMD) purposes, including calculating RMD amounts for beneficiaries. The following is a list of the requirements:

    • The trust must be a valid trust under state law or one that would be valid if that there is no corpus.
    • The trust must be irrevocable or become irrevocable upon the death of the account owner.
    • The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the retirement account are identifiable.
    • A copy of the trust instrument is provided to the administrator of the retirement plan (IRA custodian), and the trustee agrees that if the trust instrument is amended at any time in the future, the account owner will, in a reasonable time, give the IRA custodian a copy of each amendment. If certain requirements are met, a list of trust beneficiaries can be given instead

If the trust is not qualified, the account is treated as not having a designated beneficiary.

7. Does the beneficiary form include anything that could result in it being invalid?

A seemingly innocuous mistake can, at worst, invalidate a beneficiary designation form. At best, it can cause frustration for your beneficiaries and other involved parties. These mistakes include, but are not limited to:

      • Percentages do not add up to 100. Generally, the percentage allocated to each beneficiary must be indicated on the beneficiary form. Some documents default to a pro-rata share if no percentages are indicated. However, the matter gets complicated if percentages are provided and they do not equal 100.
      • The form is not signed.
      • Absence of spousal consent. Spousal consent is required if a married participant designates someone other or in addition to his spouse as primary beneficiary for a retirement account under certain employer-sponsored plans, and for some IRAs where the owner’s residence is in a community or marital property state.
      • A witness is a beneficiary.

Some beneficiary forms and governing plan documents include language to indicate whether and what type of mistakes will result in invalidation. Generally, an invalid beneficiary form will result in the default provisions of the IRA agreement being applied.

Ideally, the beneficiary form should be reviewed annually, with steps taken to ensure that your beneficiaries inherit what you intended. An annual beneficiary review with your financial advisor can ensure your heirs are taken care of as you had planned.

Denise Appleby runs a firm that provides a wide range of retirement products and services to financial, tax, and legal professionals. She also founded the consumer education website: retirementdictionary.com.

Denise Appleby is not affiliated with Larson Financial Group.

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

The opinions expressed by featured authors are their own and may not accurately reflect those of Larson Financial Group. They do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-parties. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. This material is not to be construed as an offer to buy or sell securities or other products and services of Larson Financial Group or its affiliates. Before taking action on a financial plan, please review any offering documents available, including prospectus and consult an appropriate investment professional regarding your specific needs.

Have Questions?

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Copyright © 2017 by Horsesmouth, LLC. All Rights Reserved

The Three Documents That No Estate Plan Should Be Without

Many physicians are taking inventory of their life and finances and setting goals with the intention of making this year better than the last. One particular area that many should consider reflecting upon is estate planning. This is the process of deciding for yourself, ahead of time, what you want to happen in the event of an untimely death, disability or health emergency.

Regardless of financial planning status, completing an estate plan should be near the top of the list. In the absence of clearly-stated wishes, assets will be dispersed according to the laws of the state of residence — these may not always line up with one’s most earnest intentions. It is important to create a meaningful legacy rather than inadvertently naming the IRS or creditors as your primary beneficiary because of a lack of planning.

While the nuances of estate planning are beyond the scope of a single article, an estate plan should contain, at minimum, these three integral documents: a will, power of attorney and healthcare directives.

Wills

A will can outlines where property is to go and, most importantly, nominate guardians of minor children in the event of death. However, simple wills cannot outline how, when or for what purposes money should be given to beneficiaries — the distributions will be outright. A will must go through the probate process before distributions can be made.

Physician Financial Advisor

Powers of Attorney

A durable power of attorney allows a spouse or trusted individual to sign your name for you in the event that you are not able to under your own power. This empowers them to handle finances such as taxes, bills, bank accounts and real estate sales while the grantor of the power is incapacitated. In many states, powers of attorney can be “springing” i.e. take effect only in the event of an incapacitation or they can be effective immediately. Some institutions may ask clients to sign internal power of attorney forms for fear of liability

Advanced Directives

Advanced directive and Healthcare Powers of Attorney documents outline how healthcare decisions should be addressed in the event of incapacity. A part of the health care directives is the HIPPA authorization, allowing the release of protected health information to those serving as healthcare powers of attorney. Advanced directives or living wills also provide direction regarding end-of-life decisions so loved ones serving as healthcare power of attorney are aware of wishes and are not left to make this difficult choice alone.

Conclusion

It is highly recommended that you consult with an experienced estate planning attorney with knowledge of your family’s individual circumstances when establishing an estate plan. Make an effort to be prepared and decisive when meeting with an estate planning attorney. Before your first meeting, ask your attorney what documents and information you need to bring to your meeting. The less time your attorney needs to spend gathering information, the less money you’ll ultimately end up spending.

This article has been provided for informational purposes only and is not intended to be, nor should it be considered legal advice. Consult an appropriate legal professional regarding current laws and application to your particular situation. You should not make any decisions about any legal matter without first consulting with an attorney. This article is not intended to create, and receipt does not constitute an attorney-client relationship.

Have Questions?

Preserve Your Wealth and Legacy with a Trust

Creating an estate plan that charts a stable financial future for your family is a true act of love and generosity. However, many physicians procrastinate on documenting their final wishes with the reasoning there is ample time to take action down the road. At the very least, parents need to establish wills to protect their spouses and children and powers of attorney for healthcare and property to nominate someone to make decisions in the event they are no longer capable.

An effective estate plan typically goes beyond having just a will and powers of attorney in place. Establishing a trust for your loved ones gives you the flexibility to customize distributions, allowing you to pass on your values and legacy along with your assets. With a carefully planned trust, you can rest assured that the right assets are being transferred to the right hands at the right time. You can also establish benchmarks and financial incentives that encourages your beneficiaries to achieve goals and build character as they inherit your wealth.

There are several trusts that can be utilized for estate planning purposes, and choosing the best one for your situation often depends on your objectives, state of residence, assets and several other factors. Below is a brief overview of some trusts commonly used by doctors as they are developing an estate plan.

Testamentary Trust

This is a section of your will that lays out terms to guide a designated trustee in creating a trust with the oversight of the probate court. The trust, once created, determines how, when, and for what purposes your children should receive the proceeds from your estate and is essential for anyone with young children. If there is someone you trust wholly with the stewardship of your children’s finances, you can designate them as a trustee and give them full discretionary authority over the money.1

Larson Financial Lawsuit Protection

These trusts may also contain a “spendthrift provision,” which shields the assets within the trusts in the event of a child’s divorce, bankruptcy or other potential financial hardships. A testamentary trust is established after you die. The probate court oversees the trust throughout its existence, so legal fees can add up. There is nothing you need to do while living except sign a will stating that it should be established at death.2

Revocable Living Trust

A living trust is established during your lifetime and can actually own your assets during your life. You are the trustee and beneficiary of the trust during your life, and any income that the trust assets generate would pass through to your personal tax returns. No separate tax returns are required. You retain complete control of the trust assets during your life and have the ability to change the terms of the trust or revoke the trust in its entirety. A revocable living trust keeps wealth confidential at death, unlike a testamentary trust. Once you die, the trusts can have asset protection benefits for a surviving spouse as well as your children.3

Irrevocable Life Insurance Trust

This trust is often a good solution for young doctors whose estate-tax issues are caused primarily by the amount of life insurance death benefits. When in use, these trusts technically own your term life insurance policies. When you die, the proceeds from your term life insurance go into a trust for your spouse and/or children’s benefit, with the death benefit amount not included in your estate upon your death, thus lowering the size of the taxable estate.4

Asset Protection Trusts

Asset protection trusts are irrevocable trusts designed to protect and pass on your assets. These trusts are typically established in a state that allows the grantor of a trust to also be the beneficiary of the trust. These are called self-settled domestic asset protection trusts. Trusts set up for third parties such as children can also be referred to as an asset protection trust, but you do not have the benefit of potentially remaining a beneficiary. Typically, the asset protection features of these trusts exist by putting the control of the assets in the hands of a bank, trust company or law firm. By not controlling the assets yourself, you are allowed to retain access and a court cannot force you to make any distributions to yourself. If you set up a trust for a third-party beneficiary, you may be able to retain control of the assets yourself.5

Conclusion

There are many other types of trusts with potential benefits for an advanced estate plan. However, many of them require you to give up some degree of control over your wealth. On the other hand, these less-flexible trusts could be worth pursuing as you near retirement age. Like many things in life, timing is everything.

There are numerous estate planning strategies with the objective of minimizing taxes through any legal means possible. However, it is highly recommended that you consult with an experienced estate planning attorney with knowledge of your family’s individual circumstances when establishing a trust.

Have Questions?

References:

  1. Investopedia, LLC, “Testamentary Trust” http://www.investopedia.com/terms/t/testamentarytrust.asp
  2. Law Offices of John W. Callinan, “Testamentary Trusts” (November 2016). http://www.eldercarelawyer.com/blog/2016/11/testamentary-trusts/
  3. Steven Merkel, CFP, ChFC “Establishing a Revocable Living Trust” http://www.investopedia.com/articles/pf/06/revocablelivingtrust.asp
  4. Investopedia, LLC, “Irrevocable Life Insurance Trust” http://www.investopedia.com/exam-guide/cfp/life-insurance-estate-planning/cfp4.asp
  5. Investopedia, LLC, “Asset Protection Trust” http://www.investopedia.com/terms/a/asset-protection-trust.asp

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.