IRA beneficiaries. Tax Credits. Long Term Care.
12/22/2005
I recently met with a new client who I’ll call Charles. He brought in files for nine IRAs that he had accumulated over the past 20 years. He wanted me to review and consolidate them into one, easily manageable account. As I went through the files, I discovered that several accounts had different beneficiaries. Three named an ex-spouse, another his deceased father, and others included his children, some of whom he had removed from his will. His two most recent accounts specified his estate as the beneficiary.
Charles explained that whenever he opened up a new IRA, he would name whoever was closest to him at that time as the beneficiary. And when he couldn’t think of anyone to name, the representative at the bank told him that naming the estate would be the best thing to do because his will would take care of everything. Charles was shocked when I explained what would actually happen to his IRA money when he died. And if you are in a similar position, you may be too.
First of all, your will or trust takes a backseat when it comes to IRAs. The beneficiary-designation form is the ruling authority. So if you’ve named an ex-spouse, a parent, or anyone that you may have even disinherited in your will, that’s who’ll receive your assets when you die.
The beauty of the IRA beneficiary-designation form is that it will allow assets to pass to your heirs without going through probate. And just like life insurance proceeds, all your beneficiaries usually have to do is present a death certificate, fill out a few forms, and their check is in the mail. It doesn’t get any easier.
If your beneficiaries have predeceased you though, or you didn’t name any at all, the assets will become part of your estate. Your heirs will eventually get the money, but they might not be able to take advantage of the Final Regulations that were approved on April 17, 2002. These rules let the beneficiaries of IRAs take smaller withdrawals, therefore stretch out tax payments longer than in the past. In fact, they can stretch the payments out for their lifetimes allowing the bulk of the account continued growth. A 42-year-old inheriting a hypothetical $300,000 IRA earning a hypothetical 6% annual rate of return would accumulate $1.2 million in 24 years.
We recommend that you consolidate your IRAs into one account (even 457 plans, 403b accounts, 401ks, etc. can be consolidated into an IRA). Then have one beneficiary designation form naming the primary and contingent beneficiaries. Keep this form up to date if your desires change in the future or if any of the beneficiaries pass away.
Consolidation of IRAs can be a very valuable process for the family’s benefit. To consolidate your IRA and other retirement accounts, call the office for an appointment. The number is 717-0007.
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Time to Save Money on Your Taxes
Tax credits are one of the best tax beaters I have come across. Tax credits are much more powerful than tax deductions and can reduce your taxes dollar for dollar.
There are certain investments that generate tax credits for their owners. Credits are not created from tax loop holes but are established in laws formally passed and funded by Congress.
Over the years, I have personally bought five different tax credit producing investments that have saved me tens of thousands of dollars in taxes.
To introduce the subject of tax credits to our clients we are hosting a talk to be given by an expert on the most popular kind of tax credits. So mark your calendar for Friday October 22nd, at 11:00 at the Hassayampa Inn in Prescott.
Lunch will be served following the program, so reservations are required no later than Wednesday, October 20th. Please call the office to reserve your seats. 717-0007.
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LTCI Can Help Keep You Out of a Nursing Home
If you needed long-term care, where would you prefer to receive it?
A. In a nursing home
B. At an assisted living facility
C. In your home
According to a recent survey, 2% of the respondents chose “A,” 19% picked “B,” and 79% selected “C.” The answers are hardly a surprise, especially when you consider that the federal General Accounting Office recently reported that one in five nursing homes have deficiencies severe enough to harm or endanger residents. So if the majority of people don’t want to go to an institution for special care, and 20% of the facilities aren’t safe, what are your options?
People often end up in nursing homes because they have run out of money. And if they are married, their spouse may be unable to handle the job as a caregiver. A Medicaid-funded facility is the only remaining choice. Don’t let this happen to you. If given the preference, wouldn’t you rather stay at home?
Look at the average daily costs for nursing home and licensed home care in your area. In some states nursing home stays are more expensive than home care, in others it is the other way around. Most long-term care insurance policies base their home care benefits as a percentage of the nursing home daily benefit. This can range from 50% to 100%, and you should go for the maximum. In addition, you may want to make sure that the policy includes a provision to pay for care by friends or family in your home.
Waiver of premium should be part of your plan. This means that if you require care, you don’t pay premiums. Also confirm that it applies to home care. Some policies only offer this rider for institutionalized care.
In addition, check out plans that include payments for home modifications and equipment that could make your recovery at home easier. And don’t forget a cost of living rider. Medical care expenses only go one direction—up.
Of course with every option, there is added cost. And you will have to balance what you want with what you are willing to spend. I can help you compare the choices and build a comprehensive plan so that you can avoid institutionalized care for as long as possible and remain in your home. Please call the office to discuss Long Term Care Insurance. 928-778-4000
