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Get the 411 on Roth IRAs

These three questions merely scratch the surface of other factors that may need to be considered. Keep in mind that your estate at age 45 is likely very different from the one you’ll have at age 65 and 85 — your accounts change, you spend/inherit assets, and you gain/lose family members. The more complex your situation, the more you’ll benefit from working with a skilled financial adviser, tax specialist, and estate attorney.

If you are considering a Roth IRA, ask yourself these three questions:

1. Will your Roth outlive you? In estate planning, the top two reasons for Roth conversions are to bequeath tax-free assets and to reduce your taxable estate. It’s critical to project your spending lifestyle relative to your net worth to understand how your assets may be used in retirement. This allows you to see what assets are likely to be part of your remaining estate.

The MarketWatch article, "When a Roth conversion is right for your estate — and when it isn’t," explains that if you project you’ll spend all of your IRA assets in retirement, the decision to convert will be based on marginal tax rates over your lifetime. If you think your Roth will outlive you, make sure the conversion tax implications outweigh the long-term savings for the person who will inherit the account. If you throw the beneficiary into a higher tax bracket with the inheritance, he or she may be better off if you take the tax hit now at your lower tax rate. But if the beneficiary’s tax rate at the time of the inheritance will be lower than your current tax rate, conversion may not be worth it. Talk with your estate planning attorney about possibly leaving the assets in a traditional IRA.

2. Is there a plan to maximize the Roth benefit? If you plan well, the benefits of a Roth conversion could span multiple lifetimes, so it’s very important to communicate this to your spouse to extend the account’s tax-free growth.

3. Does your estate benefit a charity? Charities generally don’t pay any income taxes on donations, so a traditional IRA—rather than a Roth—is a terrific asset to leave to charity. When you own an IRA, it’s like you have a joint account with the U.S. Government, as taxes are owed on the money that’s distributed. However, when the account is transferred to charity, Uncle Sam doesn’t get anything. The charity gets it all! So, converting the IRA to a Roth and naming a charity as beneficiary would be a mistake by creating an unnecessary taxable event, a payable tax to the government, and would reduce the amount received by the charity.

These are just a few of the questions that can arise when talking about an IRA conversion. The more complex your circumstances, the more you’ll benefit from working with an experienced Sacramento estate planning attorney at Redkey and Gordon P.C..

Reference: MarketWatch (November 17, 2014) "When a Roth conversion is right for your estate — and when it isn’t"

WWII Veteran Endures Financial Abuse from Caregiver

Through a series of legal maneuvers and Iowa's then-blind eye toward financial elder abuse, his caregiver betrayed the World War II Navy veteran's trust and drained his savings over a number of years, according to friends and court documents.

According to an article reported in The Des Moines Register, titled "Caregiver's $700K theft shakes elder advocates," the cost of financial exploitation against seniors is more than $2.6 billion a year in our country, and one in 10 financial abuse victims turns to Medicaid as a result.

Cases like World War II Veteran, James Ruby's are, unfortunately, not uncommon. Seniors fall victim to financial abuse every day.

Ruby's friends were suspicious of caretaker embezzlement and began searching for help. This was about the time the life-long bachelor with few relatives in the area appointed Pamala Hammond as the executor of his estate and gave her power-of-attorney. These decisions gave Hammond—a longtime acquaintance who befriended him in his last years—far-reaching legal powers to act on his behalf.

The investigations showed that in the four years before Ruby's 2012 death, Hammond had transferred money from his accounts to hers on at least 34 occasions —in the amount of more than $630,000. She also wrote 13 checks of more than $115,000 from Ruby's accounts for her benefit. She spent the money on herself or her family for things like home expenses and automobiles.

James Ruby lived a frugal life, but through her legal maneuvers, Hammond betrayed the World War II Navy veteran’s trust and took his money. She faces up to $10,000 in fines and a decade in prison.

One way to help protect against such abuse is by signing a power of attorney, or a POA. This is a legal document that one can use to name an individual to make financial decisions and act on the principal's behalf. It can be used to plan for possible incapacity and to avoid the court appointment of a guardian or conservator down the road.

On the downside, a POA is private, and, as a result, there’s usually no court control.

According to the original article, laws can sometimes be unclear about the duty owed by the agent. Broad authority, little oversight, and unclear duties can be a recipe for trouble, like what James Ruby experienced in Iowa.

POA abuse takes many forms, such as:

• Forging the principal's signature on a POA or making a fraudulent document;
• Spending the principal's money for the benefit of the agent;
• Making gifts when the person with POA doesn’t give the authority to do so; and
• Undermining the principal's estate plan by giving assets to unintended recipients.

Work with an experienced Amador and Calaveras County estate planning attorney at Redkey Gordon Professional Law Corporation and make the necessary plans to avoid the abuse that devastated Mr. Ruby.

Reference: The Des Moines Register (November 17, 2014) "Caregiver's $700K theft shakes elder advocates"

Despite Law Changes, Trusts Are Still Impressive Tools

Irrevocable trusts, which are virtually unchangeable once established, have decreased in use, but revocable trusts, over which the grantor retains control, still flourish.

A recent Cincinnati.com article, titled “Trusts remain useful tool in estate planning,” addressed some confusion over the use of trusts in light of recent changes in the law.

One very popular estate planning tool, the revocable trust, remains very much the foundation for many estate plans and is used frequently. In this arrangement, the maker of the trust (the person planning his or her estate) retains total control over the assets, but bypasses probate should the trust maker become incapacitated or die.

Trusts can be funded with a wide variety of assets, too. For example, securities, life-insurance proceeds, and real estate, as well as tangible personal property, are commonly used to fund trusts.

A common use of a trust is to provide income and bequests for the trust maker’s surviving loved ones in a way that recognizes differences among the heirs when they succeed the trust maker as the trust beneficiaries. For instance, the trust could first provide just for the surviving spouse until he or she passes away, then for the children and perhaps the grandchildren. Alternatively, the trust could provide for the spouse and children at the same time. As for the children, a trust can be structured based on the children’s needs. The needs may provide that funds be paid out at specific ages or at a certain time, like when college tuition is due or the birth of a child. Sometimes it is prudent to give sole discretion to the trustee as to when to make payments to the beneficiaries. Guidelines for discretionary payments can be detailed in the trust document.

Another reason trusts are used is asset protection. The trustee is the legal owner of the trust property and the beneficiaries are only beneficial owners. When the beneficiaries (other than the grantor of a revocable trust) have no right to demand the property, then the creditors of the beneficiaries can’t get to the assets.

Questions about trusts?

Don’t just use a book of forms and boilerplate documents, and don’t try to find a reliable answer on the Internet. What you should do is find a local, experienced Gold Country estate planning lawyer in Robert A. Gordon and Jude Redkey for specific legal advice. It’s worth the time, cost, and peace of mind.

Reference: Cincinnati.com (November 21, 2014) “Trusts remain useful tool in estate planning”

Trusts Are Only for the Rich, Right? Wrong!

 By keeping even modest sums of money protected, trusts can ensure that your wishes for your money will be honored into the future.

A recent article by the Motley Fool,titled "5 Things You Didn't Know -- but Should! -- About Trusts," sheds some light on common misperceptions of trusts.

Here are a few takeaways from the article:

You don't have to be rich to benefit from a trust. The common perception of trusts is that they are for the rich and there are Wall Street advisors managing their money. Of course, the costs of Wall Street trustees can limit their use to just people of substantial means. But a wise and trustworthy trustee from Main Street or Honeysuckle Lane may work just as well for your specific needs.

You can ask a family member to be your trustee for no compensation and to guard your assets according to the trust's terms. By protecting even a modest sum of money, a trust can make sure that your directions for your money will be followed in the future.

Trusts can last a super long time. Once upon a time,trusts had limited lifespans. A very complex legal rule says that a trust must have all of its interests vest within 21 years of the death of the last surviving person when the trust was created, so that—at least in the past—trusts couldn't last more than about 75 years or so. However, more recently dynasty trusts have made many states strike the longstanding rule or allow a much longer maximum period.

Wyoming, for example, set a 1,000-year maximum term on trusts, and Nevada’s max is 365 years. There are also some states, like South Dakota, that just let trusts go on perpetually.

Trusts let you keep your business private, even after you die. This has to be one of the best benefits of trusts: there's no requirement for your beneficiaries or the government to make their terms public—even after you pass away. A will, on the other hand, becomes a public document once it’s filed in probate court.

A will’s terms are accessible to anyone who wants to look at them, and not everyone is comfortable with that! A trust allows you to make your express instructions clear while still keeping outsiders away during one of the most difficult periods for your family.

As you can see, trusts can be very complex, but used correctly, they are a terrific solution to your estate planning challenges. Contact an experienced Northern California estate planning attorney at Redkey Gordon P.C. to talk about trusts and whether they might fit into your estate planning strategy.

Reference: Motley Fool (November 17, 2014) "5 Things You Didn't Know -- but Should! -- About Trusts"

Leaving Your Home State to Retire? Do Some Estate Planning Homework First

"During their careers, their 'acquiring wealth years,' many people live in places that have lots of jobs – and the higher cost of living that goes along with that," Friedman says. "In retirement, many of them want to move to a state where they can enjoy the same or an even better lifestyle with less money. For that, it's essential to consider not only the cost of living but the state laws that affect your accumulated wealth and income."

Pre-retirees need to consider a lot more than snow days and tradition, according to a 2014 Bankrate report and a recent Investor Ideas article titled "3 Tips for Retiring Out of State."

States have different tax laws and other regulations that can significantly affect your retirement funds. Be aware of these as you plan for where you want to live and how you want to live.

If you're planning to settle in one of the other top four "best states to retire"—Colorado, Utah, North Dakota and Wyoming (in that order)—or elsewhere, here are some tips to consider from the original article:

• Take a look at the tax laws in the state where you want to retire. Two of the top five spots on Bankrate's Best List—South Dakota and Wyoming—don’t have a state income tax and neither do several others: Nevada, Texas, Washington, Florida, and Alaska.
• An itemized deduction in one state may not be an itemized deduction in another. If you use the long form (1040) to file federal income taxes, hire a good CPA for guidance.
• Analyze how your new state taxes retirement income. States differ on taxing interest income from tax-free municipal bonds, and some states give tax credits, treat public and private pensions differently, or offer federal, military or blanket exclusions.
• These states are community property states: Idaho, New Mexico, Texas, California, Arizona, Wisconsin, Nevada, Louisiana, and Washington. These states divide all martially-acquired assets and debt 50/50 in the event of divorce. (Except for inheritance or gifts received by one spouse and maintained separately in his or her name.) Talk to an estate planning attorney about how this may impact you, if you are moving from a “separate property” state.

In fact, all of your existing estate planning documents should be reviewed by an experienced Sacramento estate planning attorney at Redkey Gordon P.C. in your new state because of the potential for new and different laws and requirements.

Reference: Investor Ideas (November 21, 2014) "3 Tips for Retiring Out of State"