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trust

What is in a name?

By | 2020, Money Matters, Newsletter | No Comments

When it comes to designating a beneficiary – everything!

It is hard to remember how many times we have named a beneficiary on a document or account. I would say it is even harder to remember who we named. The phrase “out of sight, out of mind” rings true.

The reality is the person or entity named as the beneficiary can trump your plans. Even after spending time and money creating a will and trust, you may have missed an important step. If the beneficiary is not named correctly or updated to meet changes in your plans, your desires will not be met.

Last month our Just for Women webinar focused on Wills and Trusts and featured Kent Brown of Strong & Hanni Law Firm. He shared several threats that can wreck an estate plan. One of those threats was naming beneficiaries. If you missed the webinar, you can view it on our website under Just for Women.

Here are some things to keep in mind when naming a beneficiary.

Naming one child as the beneficiary – We have experienced situations where a single child was named as a beneficiary. The intent was that the named child would split the money among the other children of the deceased. Unfortunately, the child often feels strongly that the money was intended for them alone and therefore does not distribute any money to their siblings. Do not assume a child will feel inclined to distribute the money as you wanted. If you intend that all your children will receive a portion of the account, name them all as a beneficiary and specify their portion. If your child splits the money as intended, they may have a problem with taxation. If the account was a qualified account, the full tax burden falls on the named child. This could push them into a higher tax bracket, reducing the amount distributed to siblings.

Naming a spouse and a child as primary beneficiaries – This often happens in error or because you believe your spouse will need help handling the money at your demise. Naming a spouse as the primary beneficiary gives them full access to the account. Including a child as an additional primary beneficiary does not make them a joint owner in the asset. Instead, it transfers the portion or share listed directly to them as an owner. They are under no obligation to share the money with the surviving parent. This can lead to serious financial consequences for the surviving spouse.

Naming a special needs child or adult Receiving money as a beneficiary can impede a special needs individual from receiving benefits from assistance programs. A special needs trust can help ensure the individual gets the money intended for them and names someone to handle the money on their behalf, creating a layer of protection.

Not naming a contingent beneficiary – Unfortunately, your primary beneficiary may predecease you, or you may die in a common accident. If there is not a contingent beneficiary listed, the assets will have to go through probate. In essence, you have decided the asset will be handled according to your will, if you have one, or that the courts will decide how your assets will be divided. This can cost the executor of your estate a great deal of time and expense.

Not naming your trust – A common mistake after establishing a trust is neglecting to name the trust as the beneficiary or assuming the attorney has taken care of the change. You are the only one who can sign the document naming beneficiaries on your accounts.

Not updating beneficiary designations – There are so many accounts that require a beneficiary designation that is it easy to overlook an account when you have a significant life change. This could be marriage, divorce, death of a spouse, the birth of a child or newly adopted child, or the death of a named beneficiary. We have uncovered too many instances where the divorce took place years prior. However, the ex-spouse was still listed as the primary beneficiary on the retirement account at the employer. This type of error can cause unintended heartache and financial trouble for a surviving spouse.

Make it a priority to review the beneficiaries on your accounts now. Then each year, take a few minutes to review the current beneficiaries and make changes if needed.

Here are some of the accounts to consider when reviewing your beneficiaries:

  • Retirement accounts: IRAs, Roth IRAs, 401(k), 403(b), 457, SIMPLE IRA, SEP IRA
  • Employer’s pension plan
  • Annuities
  • Life Insurance: Individual policies and group policies

Understanding when to name an individual and when to name a trust can be challenging. If you have questions or need assistance, please contact the SFS Wealth Management Team at 800-748-4788.

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Who Do You Trust?

By | 2019, Money Moxie, Newsletter | No Comments

We like to think of our families, particularly our children, as centered individuals who understand the value of maintaining important family relationships. If you don’t think your family fits into this blissful picture, don’t take it to heart. Family dynamics can be challenging, and relationships can be fragile. This is especially true when there are difficult circumstances.

It’s not uncommon to have family members struggling with drug dependency, divorce, mental health, poor spending habits, or lack of financial independence. The list is inexhaustible. Sometimes there are family members who cannot get along. However, rather than sidestepping these sensitive issues, they should be addressed.

These emotionally consuming issues can become roadblocks when it comes to designing your estate plan. So much so that many take the position, “I’m not going to worry about it. I’ll let my kids handle it when I’m gone.” Unfortunately, rather than bringing families together during times of crisis, this approach can have the opposite effect. It can pit one family member against another.

It is common for families to name one or two of their children to act as trustee or co-trustees and personal representatives. This works well in families where children get along, there are no special circumstances, and your estate is straightforward. In these situations, you may feel confident your children can handle your estate the way you intend.

In our visits with clients, we often hear that they don’t want to burden their children. However, making them trustees when there are difficult circumstances may do just that–create a burden. Luckily, the situation can be remedied by using an independent trustee when designing your family trust. Upon your death, as trustee, they handle all distributions from the trust and assist in the sale of assets when needed. Their responsibility is to handle your estate the way you want. They deal with your family in a kind and understanding way, but they are also diplomatic. They can make hard decisions, something that may be hard for a family member who wants to take care of others or could be easily manipulated.

Avoiding conflicts of interest is critical when it comes to finding an outside trustee. You want things handled your way, not the bank or brokerage firm’s way. When researching an outside trustee, we recommend finding one that is independent. This means he or she is not affiliated with a large company.

Let us help you maintain healthy family relationships. If you think you may need the service of an independent trustee, give us a call. We can share our research and advise you on a trustee that may work well with your family.

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Don’t Burn Down The House!

By | 2019, Money Moxie, Newsletter | No Comments

A home is the largest asset for American households, surpassing retirement accounts, vehicles, and other assets.(1) For 30 percent of households, their home is their only source of wealth.(2)

Unfortunately, many people don’t have a plan to protect their homes after they pass away. This can leave their home open to probate expenses, creditors, and other issues that may burn down the value of their home. To protect your home and most effectively pass it on to your heirs, consider the following issues and options.

Many people mistakenly think that having a will can protect their home. It helps control who benefits from the house and in what manner. However, even if a person has a will in place, his or her home must still go through probate after they pass away.

For a couple, that process would take place after the second spouse passes away. As the home goes through probate, there can be significant expenses, and the value of the house will be on the public records.

In an attempt to avoid probate, some people will mistakenly add on a child as a third joint tenant. However, this can have devastating tax implications, as the child will be deemed to have been “gifted” the home and inherit the existing cost basis.

For example, if the parent(s) bought the home for $50,000 and it is worth $250,000 at the time of the parents’ passing, the child will have to pay tax (when selling the home) on the gain of $200,000. That would be roughly $40,000 in taxes at a 20 percent long-term capital gains rate. The couple would have been better off to leave the home in their name; then it would at least get a step-up in basis, where the heirs would only pay taxes on any gains above the $250,000 upon selling.

There are two better options to address these issues and still get a step-up in basis.

Transfer On Death Deed (TODD)
The first option is to create a TODD and file it with the county recorder.(3) The TODD has only been an option since May 8, 2018, when Utah enacted the “Utah Uniform Real Property Transfer of Death Act.” Previously, Utahans didn’t have a cost-effective method to transfer a home to their heirs.

Now an individual or couple can list beneficiaries that will inherit the home, thus avoiding probate and keeping the value private. It will allow the inheritors to get a step-up in basis, and to file a deed with the county recorder’s office only costs $40.

However, a TODD has some potential issues:
(1) A home inherited through a TODD cannot be sold for one year unless the personal representative files probate, which negates the original purpose – avoiding probate.
(2) The TODD may violate transfers to minors’ laws, and creditors of the beneficiary can take away the inherited property. Both Salt Lake and Utah County recorders’ offices recommended speaking with an attorney before creating a TODD (reducing the cost-effectiveness).

Trust
A trust may bring you the most control while keeping the value private. Like the TODD, a trust allows the property to get a step-up in tax basis. Plus, the trust can hold a property for a minor, protect it from creditors, and provide flexibility to sell immediately. It should be created through an estate-planning attorney, and the home must be re-titled in the name of the trust. This is more expensive than a TODD, but usually costs less than probate. It may also save a lot of headache and heartache.

SFS and its employees do not provide legal services; therefore it is important to coordinate with your attorney regarding your specific situation.
Sources: (1) https://www.nahbclassic.org/fileUpload_details.aspx?contentTypeID=3&contentID=215073&subContentID=533787&channelID=311
(2) https://www.financialsamurai.com/percentage-wealth-outside-primary-residence/
(3) https://accesssaltlake.com/p468/transfer-on-death-deeds-now-provided-under-utah-law/

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An unexpectant caregiver

By | 2019, Money Matters, Newsletter | No Comments

As we welcome in the New Year, I want to give you some food for thought. New Year’s resolutions come and go – some fulfilled, some forgotten. What if you can do one thing in 2019 that will benefit you and those you love? Would you take the time to consider it?

I want to share the recent experience of a close family member of mine. This woman is kind, loving, and if it were in her power, would do anything for anyone – especially those in her family.

Unexpectedly, this woman found herself in the role of primary caregiver to her single sister. Her sister had been financially self-reliant and remarkably independent throughout her life. She was diligent in putting money aside from her earnings to help supplement her income during retirement. What she didn’t plan on were unforeseen medical events that left her completely dependent on the help and support of others.

After many months of cancer treatments, she experienced a stroke, which severely limited her mobility and slowed her speech, leaving her dependent on others for her care. Luckily, she had an older sister who stepped up and took over. Unfortunately, there were no legal documents granting anyone access to medical information, financial information, or allowing them to make decisions on her behalf.

As you can imagine, this created many difficult hurdles. Not only were there medical treatments that needed to be coordinated, there was also the issue of what insurance was available to cover the numerous hospital visits and the ensuing stays in rehab and care facilities. Add to that the dilemma of what money was available to pay for coinsurance, deductibles, and prescriptions. And what about her ongoing bills at home, how would they be paid? It was an unbelievable challenge. It took time, patience, and a great emotional toll.

This situation is not uncommon. We see it all too often. We believe that if we plan financially for the future, everything will be okay. In some cases that is true. What most of us tend to overlook is the emotional impact on those who would so willingly step up to take care of us should the need be presented. Instead of planning for the unforeseen, we unwittingly tie their hands and create unnecessary emotional stress on those we love. Waiting until next week, next month, or next year may be too late. Do it now! Make it a priority for the new year. Take the time to meet with your financial advisor and an estate planning attorney. Create the documents that will minimize the burden on those you love.

Estate planning documents generally include: Will, Trust, Medical Power-of-Attorney, Medical Directive, and Durable Power-of-Attorney. Depending on the complexity of your situation and what you are trying to accomplish, other documents may be needed. An attorney can advise you on the right documents for your personal situation.

Wishing you a healthy, happy, and prosperous New Year!

 

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Women in Transition: The Loss of a Spouse

By | 2017, Money Moxie, Newsletter | No Comments

One of the hardest life transitions women face is the loss of a spouse. Whether it is from death or divorce, picking up the pieces and moving forward is challenging – emotionally and financially.  One of the hardest life transitions women face is the loss of a spouse. Whether it is from death or divorce, picking up the pieces and moving forward is challenging – emotionally and financially.

Where there were shared responsibilities, suddenly you are in charge of everything from getting the car fixed to managing the daily budget and long-term financial plan. It can feel quite overwhelming. Not to mention, this transition comes at an incredibly emotional time.

Adjusting to your new conditions will not happen overnight and may actually take several years.  This is a time of profound self-discovery for women, who may find themselves examining issues of identity, life meaning, and aging. Creating a support group – family, friends, and professionals – gives you a pool of people you can use as a sounding board that will keep your “best interest” in mind when providing advice.

While there will be many things to tackle over the next year, here are some important things to do in the short-term:

Locate and organize your important documents and financial records. It is easy to overlook something when you are dealing with emotional stress. Having a system for gathering and organizing financial records can provide some sense of control.

Important financial documents and records are generally the first items to focus on. The bills still need to be paid and the cash flow needs to be managed.

  • Checking and savings accounts statements
  • Investment account statements
  • Retirement plan statements
  • Stock and bond certificates

Legal documents may need to be updated, reviewed, or available for reference. These include:

  • Will
  • Trust
  • Power-of-attorney
  • Medical directive

Other important papers should also be organized so that you can determine if adjustments need to be made, such as updating ownership records or beneficiaries. Some may be required for documentation as you make changes.

  • Social Security statements
  • Insurance policies
  • Marriage, birth, and death certificates
  • Property deeds
  • Ownership titles – vehicles and recreational equipment

Keep in mind that everything does not have to be done immediately. Gathering this information will allow you to set up a system for tracking important details. Keep a notebook or use a computer spreadsheet that you can easily access for account numbers, phone numbers and addresses, who to call for information on accounts, professional contacts, and deadlines to monitor.

After the initial legal and financial matters settle, you will begin adjusting to your new financial circumstances. As you move forward, remember that it may be two steps forward and one step back. Take comfort in knowing you are making the best decisions you can, financially and otherwise, for you and your family.

Remember, you are not alone. Even though you believe you can do it all, reach out to us as your trusted advisors. We can help you navigate this new landscape, avoid some of the pitfalls, give you advice, and be a sounding board as you make important decisions.

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