March 1, 2015
Dear Review and Safekeeping Clients,
- Estate and Gift Tax Update. The estate and gift tax exemption increased to $5,430,000 per individual. Up to $10,860,000 can be transferred by the combined estates of husband and wife if proper procedures are followed. For estates of married couples which may exceed $5,430,000, it is essential to file IRS form 706 within nine months of date of death of the first spouse and elect to preserve the ability to claim any unused exemption amount upon the death of the second spouse.
The annual gift tax exclusion remains at $14,000 per recipient.
- IRA Rollover to Charity. In December 2014 Congress reinstated the option of making a tax-free transfer of up to $100,000 from IRAs to a qualified charity if you are past your required beginning date.
- Inherited IRA Case Decided by U.S. Supreme Court. In the case of Clark v. Rameker, a unanimous U.S. Supreme Court held that inherited IRAs are included in the bankruptcy estate and thus subject to the claims of creditors. The court reasoned that inherited IRAs are not “retirement funds” and therefore not protected in bankruptcy. This ruling is limited to cases in bankruptcy. Inherited IRAs are still protected from claims of creditors (other than bankruptcy creditors) in Missouri and a number of other states. This case suggests that more consideration should be given to using a trust as the beneficiary of your IRA instead of individual beneficiaries.
- The Primary Beneficiary of your IRA should still be your Spouse. It would be a very unusual case where I would not recommend your spouse as primary beneficiary of your IRA. An example of one of those unusual cases would be if your spouse was in a skilled nursing facility and drawing medicaid benefits.
- IRA Conduit Trusts. With a conduit trust, the current beneficiary is treated as the sole beneficiary and the measuring life is the life of the beneficiary. The trustee would not be allowed to accumulate IRA distributions within the trusts.
- IRA Accumulation Trusts. With this type of trust, the trustee withdraws the minimum required distributions over the life expectancy of the oldest beneficiary. Distributions may be accumulated in the trust. Caution: this type of trust should not contain any powers of appointment. I recommend a review of your estate plans if you have IRA assets of over $100,000 designated to be distributed through a trust.
- Trusts vs. Individuals as IRA Beneficiaries. You should consider how important it is to provide asset protection, which is available through an IRA trust. What is the risk of divorce and claims of creditors? What is the risk that the beneficiary will blow through their inheritance? The asset protection advantage should be weighed against the cost and complexity of trusts. As a general rule, if your beneficiaries are financially responsible adults, it is usually best to simply name them as the individual beneficiaries.
- Should Grandchildren be named as IRA Beneficiaries? Advantages include the ability to extend or “stretch” the life of the IRA for a much longer period of time, thus maximizing investment growth; the grandchildren are likely to be in a lower tax bracket than your children; the value of the IRA assets are kept out of the taxable estates of the children; and IRA assets do not have to be reported on college financial-aid applications. Among the problems of leaving an IRA to a grandchild free of trust is they would achieve complete control over the account upon reaching the age of majority. Problems of leaving an IRA in a trust include trustee fees, trust tax returns, problems in completing beneficiary designations and technical requirements imposed on the trust. If the trust does not qualify, IRA assets would have to be distributed within five years.
- Problems with Will Copies. Several recent cases illustrate problems which can develop when the original Will cannot be found and the court is asked to recognize a copy of the Will. In the twenty-two years we have offered the review and safekeeping service, none of our clients who subscribe to this service have experienced the problems associated with a Will which cannot be found.
- Annual Estate Planning Seminars. Please join us with your invited guests for one of our annual estate planning update programs. Last year we had 648 registered guests and we would like to surpass that number this year. You are especially encouraged to bring administrators and beneficiaries of your estate plans. Information regarding topics, dates, times, and locations is enclosed.
- Legislative Update with Representative Kevin Austin. My friend, neighbor, and shirt-tail relative, attorney Kevin Austin, has agreed to join us for a program on recently proposed or enacted legislation relating to estate planning and administration. Kevin has served as Representative for the 136th District of the Missouri House of Representatives since 2012. This program is scheduled for May 26th at 6:30 p.m. at the Heritage Cafeteria. Seating is limited to the first 35 reservations, so please complete your registration and return it as soon as possible.
- Endorsement of Candidates for School Board. You might have noticed that my sweet wife, Patty, is a candidate for the Springfield School Board. Also, the husband of my assistant, Mollie Jessen, Daniel Jessen, is a candidate for the Nixa School Board. I normally don’t endorse candidates, but I am making an exception this year for Patty and Daniel. I think they would both be great additions to their respective school boards.
May you and your loved ones have a good year in 2015. Please call us should you have any questions or concerns. Don’t hesitate to call to schedule a complimentary review of your estate plans at least once every five years.
Robert G. Ingold