Marietta Estate Planning Attorney Describes Savvy Year-End Tax Moves for Retirement Plan Owners

Marietta Estate Planning Attorney Describes Savvy Year-End Tax Moves for Retirement Plan Owners

retirement funds

Marietta Estate Planning Attorney

Even though the elections are over, no one knows what Congress will do by the end of the year when it comes to taxes so retirees are advised to look at strategies to cut their tax bills now rather than wait for Congress to act.  With the fiscal cliff looming, Here are some considerations from Kiplinger’s:

Max out on tax-deferred retirement savings plans.  The limits for contributions to a 401(k) or other employer-based retirement plan for 2012 is $17,000; if you are over the age of 50, you can contribute up to $22,500.  Contributing the maximum is also a smart move if you plan to convert a traditional IRA to a Roth IRA since it lowers your taxable income.  IRA contribution limits in 2012 are $5,000; those over 50 can stash away $6,000.

Make gifts before 2012 ends.  Most experts expect Congress to do nothing when it comes to estate and gift taxes, then catch up and make any changes retroactive to Jan. 1, 2013 when the exemption for both goes to $1 million from $5.12 million and the maximum estate tax rate jumps from 35 to 55 percent.  Review your estate plan with your Personal Family Lawyer® to see if gifting makes sense for you this year.

Postpone RMDs as long as possible.  Experts recommend you wait until mid-December to take your required minimum distributions from your IRAs.  The tax break allowing those over the age of 70 ½ to donate $100,000 tax-free to charities directly from their IRAs expired at the end of 2011, but Congress has extended this break several times and may do so again.  So postponing your RMD as long as possible (but not past mid-December) may pay off.

If you’d like to learn more about retirement planning, call our Marietta estate planning law firm office today to schedule a time for us to sit down and talk.  We normally charge $750 for a Georgia Family Treasures Planning Session, but because this planning is so important, I’ve made space for the next five people who mention this article to have a complete planning session at no charge. Call us today at 770-425-6060 and mention this article.


Divorce After 50 – Older Couples Face Unique Issues

Phoenix, Arizona, divorce attorney Scott D Stewart, who writes an Arizona Divorce Attorney Blog,  recently published an article on the issues faced by older couples, usually where one or both of the spouses are over 50.  He notes that Al and Tipper Gore's divorce has caused many Baby Boomers to examine their own marriages and has many of them wondering how this could happen. But it does happen, and for many different reasons. As an Atlanta and Marieta divorce lawyer, I have also seen an increase in the number of my cases involving Baby Boomers.

Mr. Stewart notes that aside from the emotional aspects} of a divorce, an older couple should also analyze various problems that affect them solely as a result of their age and stage of life. The years in which they earn the majority of their income usually behind them, so careful attention must be paid to in evaluating and dividing their assets, which typically include their home as their primary residence, retirement accounts, investment portfolios and the like. If the divorcing couple is retired, dividing up the retirement assets can be complex. Typically they will need to have a Qualified Domestic Relations Order (QDRO), which is a separate court order that covers the division of retirement benefits.

Mr. Stewart also points out that other decisions must often be made, including:

• Can one spouse receive survivor benefits if the other spouse dies?

• When can each spouse receive benefits and how can they avoid tax penalties?

• Who is entitled to retirement plan contributions made following the divorce?

• If any loans have been taken out against a retirement plan, how that should be repaid before assets are divided?

Social Security benefits cannot be divided in a divorce, but rules about them can affect post-divorce income and standard of living. For example, if a wife is over age 62, and the couple’s marriage lasted for over 10 years, she can collect benefits after the divorce on her former husband’s earnings record without a reduction in benefits to the husband.

If the former husband dies, the wife may be entitled to survivor benefits – 100 percent of the former husband’s Social Security benefit. To qualify, the marriage must have lasted 10 years, the surviving spouse must be at least 60, and that spouse cannot already be entitled to benefits that are equal to or greater than those of the former spouse.

As in Mr. Stewart’s case, in our Marietta, Georgia, family law practice, we've seen that the question of  who gets the house also takes on greater significance when our clients are older. If your home has lots of equity, you could use that equity for a reverse mortgage when you reach age 62. Reverse mortgages are popular vehicles for older Americans to generate income.

Eligibility for tax benefits, exemptions and waivers also have greater significance for older clients in divorce cases.

Not  65 yet and not qualified for Medicare? Getting individual health insurance will likely be another issue you will face. Are you covered under your spouse's employer-provided insurance? COBRA laws will allow you to stay covered for up to 36 months following a divorce, but you will usually be responsible for paying those premiums. There are national organizations for seniors which offer individual health insurance coverage for members, and those groups may be a good place to start if you need to look for new individual coverage.

If you are older (over 50) and facing a divorce with these issues and others, we are here to consult with you and guide you through the process. We are happy to help couples of any age face a divorce with dignity and grace, in deference to all those years you shared a life together. Because many such clients are parents and grandparent together, we also urge those clients to take a careful look at collaborative law and mediation as a better means than litigation to resolve these issues.

SOURCE FOR ARTICLE: "Divorce After 50 – Unique Issues Older Couples Face," by Scott David Stewart, pupublished at and JDSupra

Why you must update retirement beneficiary forms after divorce

Through blogging and social media, I have had the pleasure of "meeting" and getting to know a vast array of excellent attorneys and other professionals. One of them is Mina Sirkin. Mina N. Sirkin is a Family Wealth Lawyer in Los Angeles, California.  She is also a Certified Specialist in Estate Planning, Probate and Trust Law by the State Bar of California. Mina publishes several blogs and has an excellent website. She has posted the following article from the Associated Press:

High court dispute over who gets retirement money

WASHINGTON (AP) — If William Kennedy had updated all his financial paperwork in accordance with his divorce decree, chances are his daughter would not have been at the Supreme Court on Tuesday fighting for the $402,000 she thinks should be hers.

When Kennedy died in Texas in 2001, his employer, DuPont Co., looked at the form on which he designated the beneficiary of his retirement account and saw the name of his ex-wife, Liv.

So, despite divorce papers in which she waived her right to the proceeds from that account and over the objection of her daughter Kari, DuPont paid Liv Kennedy the money.

"My father expressly did not want my mother to have another red cent after their divorce was final" in 1994, Kari Kennedy said in an interview. "There’s no doubt in my mind that he wanted me to have everything he had."

Kari Kennedy, 32, is a social worker who lives in Lumberton, Texas, with her husband and two children.

Her mother sought the divorce and received money, jewelry, furniture and an 11-year-old Mercedes Benz. The Kennedys were married 22 years. William Kennedy worked for DuPont for 34 years and died three years after he retired.

The dispute over his retirement money ruptured the relationship between mother and daughter, Kennedy said. "I did reconcile with her, but we never agreed on this point," she said. Liv Kennedy returned to her native Norway shortly after the divorce and died there last year.

Not for nothing do financial planners and advice columnists urge people to keep their beneficiary designations up to date.

The main federal law on employee benefits requires companies to follow strictly their workers’ wishes as reflected in their designations. Spouses are protected from attempts to cut them out of death and retirement benefits.

Divorce papers, by themselves, aren’t always enough to override the earlier designation of a beneficiary.

That is the situation DuPont said it encountered when trying to determine whom to pay after William Kennedy’s death. "Marital dissolution comes up all the time," said Mark Levy, DuPont’s lawyers. "Congress wanted bright-line rules that could be easily applied."

Kari Kennedy, designated by her father to handle his estate upon his death, sued DuPont and a federal judge found that the waiver Liv Kennedy signed as part of the divorce meant what it said and ordered DuPont to pay William Kennedy’s estate $402,000.

The 5th U.S. Circuit Court of Appeals, based in New Orleans, disagreed with the judge and said DuPont correctly gave the retirement savings to Liv Kennedy because she remained her ex-husband’s designated beneficiary.

The justices appeared sympathetic to Kari Kennedy, but also concerned about tinkering with the rules.

DuPont’s retirement plan says "that if you want to change the beneficiary, here’s how you’ve got to change the beneficiary," Chief Justice John Roberts said.

"We just have no way of knowing" what William Kennedy intended, Justice Ruth Bader Ginsburg said.

Kari Kennedy said her father made his intentions clear. But she agreed that if he had updated all his forms, "we wouldn’t be here."

The case is Kennedy v. Plan Administrator, 07-636.

Copyright Associated Press.


If you know anyone who is divorced, you can help them avoid the disaster above which could have been easily avoided by simply changing the beneficiary forms pursuant to an order for dissolution, and Qualified Domestic Relations Order.   Problems like the above don’t have to end in the Supreme Court.  They can be resolved at the time of divorce with some planning. 

SOURCE: Law Firm Marketing & Management Systems

Planning With Retirement Benefits

More and more people are holding the bulk of their wealth in qualified plans and individual retirement accounts (IRAs). Although most plan participants know that these vehicles provide income tax-free growth for assets held in them, few understand the rules regarding plan distributions. With proper planning, participants can make the most of this income tax benefit and even pass some of that benefit on to their beneficiaries.

Income Taxation of Qualified Plans and IRAs

Although assets held in qualified plans and IRAs (Plans) generate no income tax liability, the distribution of those assets to a participant (P) or P’s beneficiaries does, generally at ordinary income tax rates on every dollar. The IRS also imposes "penalty" taxes on withdrawals made either too soon or not soon enough. If P withdraws assets from a plan before reaching 59 1/2, he or she will have to pay a 10% penalty tax in addition to the payment of ordinary income tax on the withdrawal (unless one of several limited exceptions applies). More onerous is the tax imposed if P does not make a required minimum distribution after reaching his or her "required beginning date" (RBD), which generally is April 1 of the year after the year in which P reaches age 70 1/2. On that date, P must make certain minimum withdrawals. If P does not do so, a 50% penalty tax is imposed on the amount that should have been withdrawn but wasn’t (again, in addition to the ordinary income tax on the distribution).

In other words, there is potential tension between P, who may not want to make any Plan withdrawals even after the RBD, and the IRS, which wants withdrawals to be made and taxes to be paid. The good news is that, with proper planning, P can decrease the size of the required minimum distribution and increase the Plan’s income tax benefit.

Distribution of Plan Assets to the Participant

As noted above, P usually should not withdraw Plan assets before reaching 59 1/2 to avoid the 10% penalty tax, and must take required minimum distributions after reaching the RBD to avoid the 50% tax (these required distributions provide a floor, not a ceiling; P is always free to withdraw more than the minimum amount). The required minimum distribution is determined actuarially; basically, P divides the amount of assets held in the Plan in any given year by his or her remaining life expectancy. P must elect either to use a fixed life expectancy or to recalculate it each year. By recalculating, P obtains greater deferral during his or her life, but may adversely affect beneficiaries’ deferral after P’s death (discussed below). If P does not make an affirmative election, P will be deemed to have irrevocably elected to recalculate. P also may have the option of using the joint lives of P and the beneficiary named in the Plan beneficiary designation, which reduces the required minimum distribution each year because the life expectancy is longer.

However, P can only use joint life expectancy if P has a "designated beneficiary" (DB). Designated beneficiary is a tax term of art; it means the beneficiary named on the beneficiary designation form on the earlier of P’s death or RBD, but only if that beneficiary is an individual. In other words, P can have an actual beneficiary, but not a DB, if P names a charity or P’s estate. A trust must qualify as a DB, but only if it is drafted to meet certain tax requirements. If P has named several beneficiaries, each must be an individual (or qualifying trust) for P to have a DB. If several beneficiaries are named, the oldest beneficiary’s life expectancy is used. Finally, if P names an individual other than P’s spouse, that individual will be deemed to be no more than 10 years younger than P for purposes of determining P’s minimum required distributions.

Once P has reached the RBD and a DB has been determined, P cannot later change to a younger DB in order to increase the amount of deferral. However, if P later changes to an older beneficiary, or to a non-individual, that new beneficiary’s life expectancy will be used and the amount of deferral decreases. In other words, P cannot help, but can only hurt, himself or herself by changing beneficiaries after the RBD.

Distribution of Plan Assets After the Participant’s Death

On P’s death, Plan assets are distributed to P’s beneficiaries in accordance with rules that change, depending upon the beneficiaries’ identities and the date of P’s death.

First if the beneficiary is P’s spouse, the spouse can always roll over the Plan assets into a new IRA, giving the spouse the ability to use his or her own life expectancy and name a new DB, achieving even greater deferral. This ability to roll over Plan assets is limited to P’s spouse, and only if the beneficiary is the spouse individually, not a trust for his or her benefit. Although the spouse has other options, rolling over Plan assets will almost always be the best choice.

Second, if the beneficiary is not P’s spouse and if P dies before the RBD, there are two options. If the beneficiary is a DB, then the beneficiary can withdraw Plan assets over his or her life expectancy. If the beneficiary is not a DB, then the beneficiary must withdraw all Plan assets (and pay income taxes on the withdrawal) within 5 years of P’s death. Note that the 5-year rule also applies if the DB fails to make his or her first required distribution by December 31 of the year after the year in which P dies.

Third, if the beneficiary is not P’s spouse and if P dies after the RBD, the beneficiary must withdraw Plan assets "at least as rapidly" as P did. As you might expect given these horribly complicated rules, "at least as rapidly" does not actually mean at least as rapidly, but rather using the same method, as P did. This can have adverse consequences for P’s beneficiaries. For example, assume that P never filled out a beneficiary designation, or named her estate as her beneficiary, on the RBD. Assume further that she never elected otherwise, so the IRS deemed her to be making minimum distributions using the recalculation method. Finally, assume that her will directs that P’s two daughters are entitled to all the property of her estate. Under this example, P has no DB, so only P’s life expectancy can be used. On P’s death, her withdrawal method must be used by her estate and subsequently by her daughters. Because P’s recalculated life expectancy after her death is zero, all of the Plan assets must be withdrawn by December 31 of the year after the year in which P died, and income tax at ordinary rates must be paid on the entire amount. All future deferral is lost. By contrast, had P named her daughters individually (or qualifying trusts for their benefit), the daughters could have withdrawn Plan assets over the oldest daughter’s life expectancy.

Estate Tax Considerations

In addition to the income tax issues described above, the value of the assets in the Plan on P’s death will be included in P’s estate when determining estate tax liability. Unless P’s beneficiary is P’s spouse or charity (and the marital or charitable deduction applies), the Plan assets could be subject to estate tax of up to 49% in 2003 (due to decrease to 45% by 2007), depending upon the value of P’s estate. If assets are withdrawn from the Plan to pay this tax, that withdrawal will generate an income tax liability on top of the estate tax liability.

Planning Considerations

In light of the factors above, a Plan participant should always consider the following:

The Beneficiary Designation Form Governs

    Participants routinely (and wrongly) assume that their wills govern the distribution of Plan assets. These assets are distributable to the beneficiary named on the form, or according to the default method in the Plan, regardless of the provisions of the participant’s will.

    Always Name a DB, if Possible

      As noted above, without a DB, the deferral of withdrawals from a Plan by either the participant or the beneficiaries may be severely limited or eliminated completely.

      Review the Plan Periodically, and Always Just Before the RBD

        The beneficiary designation should be reviewed at regular intervals, after a major life event such as divorce or a death in the family, and within the year before the participant reaches the RBD. The latter is particularly important, because it allows the participant to ensure that he or she will make the proper election regarding minimum distributions by the RBD.

        Advanced Planning

        If a participant has a large Plan balance or a complicated estate plan that involves, for example, distributing Plan assets to trusts for minor children or partially to charity and partially to children, the participant should consider working with an expert in this area to obtain the best tax planning advice.

        SOURCE: American Bar Association