Additional Planning

The planning process begins with the core plan, but often additional planning is necessary to address all of your concerns. For instance, if your estate is larger than the current applicable exemption, estate tax liability can become an issue to plan around. Or, if significant funds are held in income-tax deferred accounts, then we may want to do some additional planning to maximize the income tax deferral. Through the planning process, we can layer more advanced planning on top of the core plan until you are satisfied that your objectives have been achieved. Some of these techniques are:

  Retirement Asset Trusts 

  Preparing Children for Inheritance 

  Special Needs Planning 

  Wealth Replacement Trusts (aka "Irrevocable Life Insurance Trusts") 

  Business Formation & Succession Planning 

  Charitable Planning

Preparing Children to Manage Inherited Wealth and Instilling Values

Studies show that 70% of "sudden wealth", including lottery winnings and inheritances, are completely exhausted within 18 months of receipt. Preparing your children to receive wealth is an important step if you would like your life's legacy to last a bit longer. This includes instilling values and sharing your purpose for wealth with your children. It also includes technical provisions that allow responsibility and wealth to transition to the next generation, rather than simply transferring to the next in line.

Special Needs Planning

It is especially critical that families with special needs individuals adequately plan for life's contingencies. While no one could replace the parents of a special needs child, proper planning can ensure that the next-best person is in line to care for the special individual and manage finances for their benefit.

Retirement Assets Trusts: Maximizing Income Tax Deferral on Retirement Accounts

Planning for tax-qualified plans, which includes IRAs, 401(k)s and qualified retirement plans, requires a careful examination of the potential taxes that impact these assets. Unlike most other assets that receive a "basis step up" to current fair market value upon the owner's death, IRAs, 401(k)s and other qualified retirement plans do not step-up to the date-of-death value. Therefore, beneficiaries who receive these assets do so subject to income tax. If your estate is subject to estate tax, the value of these assets may be further reduced by the estate tax. And if you name grandchildren or younger generations as beneficiaries, these assets may additionally be reduced by the generation-skipping transfer tax. All tolled, these assets may be reduced by 70% or more.

One way to help reduce the tax impact is to structure these accounts to provide the longest term payout possible; deferring income tax as long as possible minimizes the overall tax impact and allows the account to grow tax-free.

To achieve this maximum "stretch-out", you should name individuals who are young (e.g., children or grandchildren) as the designated beneficiary of your tax-qualified plans and, significantly, the beneficiary should take only those minimum distributions that are required by law. The younger the beneficiary, the smaller these required minimum distributions.

Naming a beneficiary outright to accomplish this deferral has several disadvantages. First, if the beneficiary is very young, the distributions must be paid to a guardian; if the beneficiary has no guardian, a court must appoint one. Another disadvantage is the potential loss of creditor protection. A third, practical disadvantage is that many beneficiaries take distributions much larger than the required minimum distributions, often consuming this "found money" in only a couple of years.

However, by naming a trust as the beneficiary of your tax-qualified plans, you can ensure that the beneficiary defers the income and that these assets remain protected from creditors or a former son or daughter-in-law. We recommend that this trust be a stand-alone Retirement Trust (separate from your revocable living trust and other trusts) to ensure that it accomplishes your objectives while also ensuring the maximum tax deferral permitted under the law. This trust can either pay out the required minimum distribution to the beneficiary or it can accumulate these distributions and pay out trust assets pursuant to the standard you set in advance (e.g., for higher education, etc.).