Why a Trust Update Is Needed
- Changing beneficiaries
- Adding or removing assets
- Relocating to a new state
For some people setting up your trust estate plan can be a daunting task. You are forced to think about your least favorite subjects, death and taxes, and make critical decisions about how to distribute your estate. The final trust signing appointment is usually followed by a sigh of relief, with the plan to put your estate planning folder in a safe place for future generations.
But wait, there’s more….
Many people don’t sit down and take the time to read through their estate plans after their review and signing with their attorney. Usually, this includes an instruction letter on how to “fund” your trust. Unfortunately, this is the part of estate planning that many people skip.
To put it simply, a trust is a naming convention, or a bucket, to hold and protect your assets. You want to put all the assets that you can into that bucket. In order to actually put the assets in the bucket, you must retitle them so that they match the title of your trust. Because the title to your home lives at the county recorder’s office and your bank and brokerage accounts live at the financial institutions, you cannot physically put them in your bucket. You must retitle them so that the place where they live knows they belong in your trust. If these accounts are not in your trust, they won’t be available to your trustee to manage for you if you get sick, or to distribute to your heirs after your death.
If you do not retitle your house deed or rename your bank accounts, then your trust will not be honored by the county or banks when the time comes to administer your trust. This will often result in probate court, which is not the purpose for which you just spent time, money, and effort creating your trust estate plan. Probate is a court proceeding that is required in California when a decedent owns assets only in their name (not in their trust), and is required for real estate valued at over $55,000, or any assets with a total value of over about $166,000. Probate in California currently takes about 2 years or more and costs a percentage of the gross value of your estate.
These tax-deferred accounts, or assets not yet vested, do not go into your trust, but you can, and should, designate beneficiaries for these accounts in line with the distribution plan for your estate. There may be instances where you want the trust to be the beneficiary of these plans, but please consult with your attorney first.
The good thing about funding a trust is that typically you only have to do it once. If you amend or restate your trust in the future, you do not have to redo the funding. The original name and date of the trust remain the same. Any assets you get rid of, such as selling a house or closing a bank account, have no effect on the trust. If you open a new account or purchasing real estate, you can do so directly in the name of your trust. The only update you should make is to update the asset schedule of your trust, and if necessary make changes to distributions because of these new assets.
Setting up a trust and estate plan is a potential minefield you don’t want to tackle on your own. Whether you have a plan in place now or need to start from the beginning, we can help. For over 30 years Joel A. Harris has been protecting the estates of families throughout California. If you want some help navigating the ins and outs of protecting your estate or establishing a trust to protect your future, feel free to visit us online, in person, or call us by phone at (925) 757-4605.
Saving for retirement is a task that unfortunately we Americans have become worse and worse at over the years. Over half of the American population has not saved enough for retirement at the time of retirement and end up having to return to work with at least a part-time job. A full 25% of Americans don’t have any retirement savings or plans in place at any given time in their working careers. However, a law that was just signed into law by Congress on December 20, 2019, aims to improve and aid in Americans preparing and saving for retirement. The bill, called The Setting Every Community Up for Retirement Enhancement (SECURE) Act, has five major key takeaways that affect estate planning:
Under the SECURE Act, part-time employees who work at least 500 hours a year and have been with the institution for 3 years or more will now not be exempted from contribution plans from the employer. This will have a huge impact on those who have moved from full-time employment to part-time, instead of fully retiring. This will have a major impact on those who are 65 and above, who, in the last decade or so, have been forced to continue working in some capacity because their retirement accounts cannot support them fully.
The next large take-away from the SECURE Act is that now small businesses will be able to offer retirement plans for their employees. Previously, it was costly for small businesses to offer these kinds of options to their staff members, leaving employees to plan for themselves. Now, it will increase the cap of the income that employees need to be able to save from 10% of income to 15% of their income. This adjustment is important for those who have spent their lives in small businesses, and have been left to their own devices in terms of retirement planning. This aims to assist them in making their retirement planning more feasible.
Another significant part of the SECURE Act is the transparency it will require from 401(K) accounts. As of right now, 401(K) accounts are not required to disclose the monthly allowance the retiree would be receiving on each statement. While this might seem trivial, the sum of money saved has been allowing Americans to become falsely secure in the amount they are saving, without having a real concept of what that sum will translate into. Now, 401(K) accounts will be required to display the monthly allowance on every balance, for the retiree to better understand exactly the sums they will be receiving when they do retire.
Finally, the SECURE Act adjusts the age at which people need to begin withdrawing money from 70.5 years to 72 years of age. While this is a subtle change, since the majority of people are working into more advanced years anyways, those who do not need to withdraw money will have an additional 1.5 years to keep that money in their retirement accounts. Withdrawals from the retirement accounts are still allowed before then, but this increase in age is aimed at helping those who are continuing to work anyways, by allowing them more time to save.
Trusts should no longer be beneficiaries of most IRA’s under the SECURE Act. Previously if your living trust was written properly your trust could be the benefit of your IRA so that your trustee could maintain some control over your beneficiaries. Now with the SECURE Act, if your trust is named one of the beneficiaries, the beneficiaries of the trust will probably have to take distribution of the entire IRA in the 10th year after death, which will result in a larger tax burden. Finally, if your IRA beneficiary is very young or disabled, you will want to consider a “trusteed IRA” which allows a professional to manage the IRA after your death.
You will have to pay taxes on inherited IRAs sooner than you may have expected. The SECURE Act essentially eliminates the “stretch IRA,” which was an estate planning method that allowed IRA beneficiaries to stretch their distributions from their inherited account — and the required tax payments on them — based on their life expectancy. For example, if you named a grandchild as your beneficiary, most of your account could’ve stayed invested for decades after your passing, and the grandchild could’ve continued to take advantage of the tax benefits. Under the new law, however, most beneficiaries must now withdraw all the distributions from their inherited account and pay taxes on it within 10 years. The exceptions to this are for spouses and the chronically ill or disabled. One important thing to remember is that this provision is not retroactive and will not affect those who have already inherited an IRA. It will apply to those starting on Jan. 1, 2020, and may affect the estate planning of those planning to pass on an IRA to a non-spouse.
Under the SECURE Act, if your living trust is named as beneficiary of your IRA, your beneficiaries will probably only have two options, both bad: cash it all out immediately, or cash it all out in year 10. This may cause a huge tax. There are other options available, but these need to be explored on a case by case basis. For most people, you simply need to name your spouse as primary IRA beneficiary, and your children as contingent IRA beneficiaries. However, if your children are young, disabled or foolish, other options will need to be explored. For example, you may be able to name a trust company or fiduciary as trustee of your IRA. You can also explore ROTH IRA conversions with your tax and financial advisor. More complex but powerful options may also be available.
With these new changes in retirement planning, you may still have some remaining questions. The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your retirement, establishing a trust to protect your legacy and your assets, and any other legal questions you may have. Whether it is in retirement planning or any other kind of legal counsel, The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. Joel Harris is an attorney with over 25 years of experience and is extremely familiar with this process. If you are not sure how to begin, or you just want some help navigating the legal side of your retirement process, feel free to visit us online, in person or call us by phone at (925) 757-4605.
What Will The SECURE Act Mean For My Retirement Plans?
What are your retirement plans? Have you thought about how you will pay for your housing situation? Have you reserved enough money for extra expenses? Will the retirement age change by the time you retire? All of these questions are valid and you should take them into consideration as you grow older. With policies changing regularly, it is critical to stay up-to-date to be prepared for any situation.
In 2019 the senate will decide whether they approve the changes for the current retirement requirements or if they will make any changes at all. With the House of Representatives already approving the Setting Every Community Up for Retirement Enhancement Act (SECURE Art), the requirements for new retirement plans will change. If passed, you can expect some changes to be:
Retirement should be an exciting time, away from confusing language and ever changing politics. For this reason, The Law Offices of Joel A. Harris works hard to provide you with information to make it easier for you to understand the new changes the SECURE Act brings. We are located in Concord, Walnut Creek and Antioch, to be most convenient to our clients. If you would like to visit us in person, by phone at (925) 757-4605 or via website, feel free to contact us and we will be more than happy to help!
There are quite a few changes that you can expect once the SECURE Act is passed and put into practice. Below are a few changes that you can expect and how you can prepare for them to better your retirement experience:
If you are planning to retire shortly or have yet to plan for retirement, The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you plan accordingly. Joel Harris is an attorney with nearly 30 years of experience in estate planning, trust and probate law. Joel works with expert tax and financial planners who can take the time to help you plan for retirement, create a budget, document progress and provide useful reminders pertaining to your personal retirement plan. If you are not sure how to begin planning for retirement, feel free to visit us online, in person or by phone at (925) 757-4605. Our priority is your future success!
Every estate plan has unique features, but after preparing living trusts and wills for the nearly thirty years, we have seen the same problems and mistakes often reoccur. Each of these common mistakes is avoidable as long as you take the care to make sure you been address them correctly. From wills to trusts and beyond, protect your loved ones by avoiding these four costly and common estate-planning mistakes.
Many people become passive in the presence of an estate planning attorney. They rely on the attorney to make sure everything in the plan is what they need and is done properly. Part of the estate planner’s job is to be sure you understand the basics of how the plan works, what you need to do to implement or maintain the plan, and how it works for you and your beneficiaries. It is not your job to know all the legal angles and why certain language is used.
Often people make decisions after a discussion with their estate attorney but then later on details become hazy. Insist that your attorney simply explain your documents. You may wish to take notes about key decisions and why you made them. Each time the law or your family changes, you need to make it a part of your check-list to revisit your estate plan. These changes may require alterations in both new and old estate plans.
Every estate plan should include powers of attorney. You need at least two, one for financial matters and one for medical care, often called an Advance Heath Care Directive in California. Unfortunately, many people don’t have either of these documents, and others haven’t kept them up to date or given the details much thought. Be sure you have these completed these documents and that they have been reviewed recently. Your financial power of attorney agents normally mimic your Executors and Successor Trustees.
Failure to update beneficiary designations means an asset might go to your parents, siblings, or even an ex-spouse because of what the original form states. Your asset may be designated to a deceased person, or other unintended beneficiaries – we’ve seen it all. Other times someone is inadvertently excluded because they were born or married into the family after you completed the form. Review your beneficiary designations every couple of years and after every major life change in your family.
You might own some assets in your own name and others in joint title with your spouse, adult child, or someone else. Some assets might be in your trust, limited partnerships, or other vehicles. When you have a living trust, the trust only protects assets that it owns. Normally all real estate, partnerships, brokerage accounts, stocks, bonds, mutual funds, notes, bank accounts and personal property will be owned by your trust. Life insurance policies will name your trust as beneficiary (except for special policies created to pay estate taxes). IRA, 401K and similar tax deferred retirement accounts cannot be owned by the trust – it is critical to name the right beneficiary on these accounts.
The Tax Cuts and Jobs Act made significant changes in income and estate taxes. If you have a trust or established estate plan created before 2012, you should have them reviewed to see if they are obsolete, or add unnecessary costs and complexity. To help your beneficiaries avoid unnecessary stress, ensure that you are distributing the right assets to the right people. You would be surprised what we find in old estate plans!
If you are not properly prepared and with a well-planned will, then your family could be vulnerable to higher tax bills, extensive legal fees, and familial conflicts. To avoid those obstacles you should visit an Estate Planning Attorney to get professional help, and create a plan that well suits your goals.
At The Law Offices of Joel A Harris located in Antioch, California (here is a convenient map), we have worked for over 25 years giving the best guidance our clients need to protect their assets. Have a question about your planning your estate? Feel free to schedule a sit-down meeting where we are happy to patiently answer every question you may have. For your free consultation reach out to us at (925) 757-4605.