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Designating beneficiaries: Don’t Let Your IRA Get Derailed

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 Imagine you’ve lined up your will, your trust, all the necessary estate planning documents, thinking you’ve covered your bases. But here’s one you may have forgotten: naming beneficiaries for your IRA. A friend recently found out the hard way that this easily overlooked detail causes huge headaches. You see, her mother wasn’t sure who to name when the account was opened and decided to think about it.  Time went on and her mother passed away before this detail was corrected, sending the IRA to probate. The two intended beneficiaries will eventually get the money, but they will be forced to take the distributions much faster than they want (and absorb the tax implications), rather than stretching the payments over a longer period of time.

Here are some potential problems when a beneficiary is not named on an IRA:

  • There is no backtracking by trustees or personal representatives to “fix” the omission
  • The account will be distributed according to your will; through the probate process which can be lengthy depending on the complexity of the estate
  • The account becomes subject to the creditors of your estate
  • The opportunity for tax deferral by spreading out distributions over a longer period of time may be lost.

It seems easy enough to name a beneficiary, but the reality is that this important designation is often overlooked. To prevent unforeseen mishaps, have your IRA beneficiary form reviewed by your financial planner annually to make sure it reflects your wishes and fits with your overall financial planning objectives. 

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal issues with the appropriate professional.

Curtain Call

 

The Center's Team enjoys sharing their knowledge with the press to help stories come to life, share facts and bring important topics to the forefront.  We are also honored when we are recognized by media and publications for our work and service to our profession. Here's what's new:

Wall Street Journal

Timothy Wyman, CFP®, JD was quoted in the Wall Street Journal on July 22, 2013, in an article titled, “Detroit’s Bankruptcy as a Teachable Moment” by Veronica Dagher.

Center Included in 2013 Financial Advisor Magazine's Top RIA Ranking

Center for Financial Planning, Inc. has been recognized among the nation's top-ranked investment advisory firms for the past four consecutive years.

Financial Advisor Magazine ranks the top registered investment advisory firms (RIAs) across the country based on a survey of firms' assets under management and percentage of growth.

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Demystifying the Gift Tax

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 Recently we have been receiving quite a few inquiries from parents looking to gift money to their children.  People may give for various reasons, but one of the most common reasons we have heard lately is for a down payment on a first home.  There seems to be a lot of confusion about how much can be gifted annually without being subject to the “gift tax”.

For 2013, the Annual Gift Exclusion Amount is $14,000

What this means is you can gift $14,000 in 2013 to your son, daughter, niece, nephew, neighbor, or a random guy on the street. You can give EACH of them $14,000.  The $14,000 gift does not have to go to a member of your immediate family (they don’t even have to be related to you at all for that matter).  If you are married, then you and your spouse can each give $14,000 to anyone you chose without being subject to gift tax.  Just to be clear, that means if you are married you can gift $28,000 to anyone you want in 2013 and pay nothing in gift tax on that gifted money.  Also, it doesn’t have to be cash. You can also gift stocks, bonds, property, artwork, etc.

Now is where things get a little trickier...

Let’s say that you want to give your son $50,000 for whatever reason.  So you and your spouse each gift $14,000 for a total of $28,000.  That leaves $22,000 remaining that you need to transfer to your son.  How can you get him that money without being subject to gift tax? Simply gift him the additional $22,000 and file IRS form 709 and potentially pay no tax on the additional gift!  Notice I did say “potentially” no gift tax.  For those of you that intend to give more then $5.25 million there could be some gift tax liability. However, for those of you reading this who never intend to give away that much, you shouldn’t be subject to any gift tax on the additional $22,000. 

A little history on why this works: Prior to 1976 wealthier people that were looking to avoid paying estate taxes at their death found a way to circumvent the estate tax by simply gifting assets to their heirs while they were still alive. In 1976 congress “unified” the estate and gift tax law so that any gifts you made during your lifetime over the annual exclusion amount ($14,000 in 2013) would count towards your lifetime exclusion amount. In 2013 the lifetime exclusion amount is $5.25 million per person.  So a married couple could gift $10.5 million over their lifetime without paying gift tax. 

So, John and Jane Doe could gift $50,000 to their son outright and not pay any gift tax on the entire amount. The first $28,000 would fall under the annual exclusion amount and the remaining $22,000 would be applied to their lifetime exclusion amount of $10.5 million. Based on the current laws of 2013 John and Jane would have $10,478,000 left of their lifetime exclusion.

Consult with a qualified tax professional and your financial advisor for help navigating the gift tax.

For additional information please refer to IRS publication 950. The link is included below: http://www.irs.gov/uac/Publication-950,-Introduction-to-Estate-and-Gift-Taxes-1

The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  The example provided is hypothetical and for illustration purposes only.  Actual investor results may vary.  Please not, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation.

Join us in welcoming Matt Trujillo

 
There is a new face around our office and it belongs to Matt Trujillo. He’s one of our two new Support Advisors who will be working directly with our financial planners and our clients. The focus of the Support Advisor position and Matt’s new role is to assist our lead planners in providing an even deeper level of service to clients. Managing Partner Tim Wyman adds perspective.

Matt is uniquely qualified for this role and has hit the ground running. We are excited to have both Matt and Nick join the firm - two quality people who espouse our firm and service values.

Matt has almost six years of experience in the financial sector. When he’s not here at the Center, you might find him playing with his son, fishing or playing and teaching chess. He’s lived in Michigan for the past 18 years, but originally hails from Denver, Colorado.

When asked why our team felt like the right fit for him, Matt said, “I think of the Center as a family of advisors helping families of the community meet their financial goals.” Welcome to our growing family Matt!

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College Savings 101: The 529 Plan

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 It doesn’t quite seem possible, but yet another summer is quickly coming to an end and before you blink, the leaves will have changed and Christmas products will be on the shelves.  Very soon, school will be back in session and those who are of college age will begin the seemingly daunting task of getting their ducks in a row before another semester begins.  Deep sigh……

One of the top priorities on that list for parents should be to consider using a 529 account for college savings.   529 plans are tax-deferred accounts (like an IRA) that are an excellent way to save and invest for various higher educational expenses. 

Features:

  • Potential state tax deduction on contributions up to certain annual limits
  • Tax deferred growth potential
  • No taxation upon withdrawal if funds are used for qualified educational expenses (such as tuition, books, certain room and board, computers, etc.)
  • The owner, generally the parents have control over the account and can transfer the account to another beneficiary
  • Not subject to “kiddie tax rules,” unlike UGMA accounts (Uniform Gift of Minors Act) and UTMA accounts (Uniform Transfer to Minors Act)

Items to be aware of:

  • No guaranteed rate of return – subject to market risk
  • Certain taxes and penalties may apply if funds are withdrawn for non-qualified expenses
  • Keep records of how money was spent that was withdrawn from the 529 account in case of an audit
  • Review the asset allocation/risk profile of the account periodically.  Typically, the closer the child is to entering college, the more conservative the account should become

In one of our staff meetings this week, one of The Center planners reminded us all, “there are certain aspects in life that are humanly impossible to control.  It is, however, the factors that we do have control over that we must focus on, to better ourselves and the service we provide to our clients.”  Although college expenses have risen by almost twice the rate of inflation, this is something we truly cannot control.  What we do have control over, however, are the tools we can use which can assist us in creating a solid educational financial plan – something a 529 account can help provide.

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing.  More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state.  Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.

Join us in welcoming Nick Defenthaler

 The Center team continues to grow this summer. One of our newest additions in the position of Support Associate is Nick Defenthaler.  As a Support Associate, Nick will be working with our lead financial planners (both behind the scenes and in client meetings) to help  provide an even greater depth of financial planning service for our clients.  Nick said he knew right away that he was a good fit for The Center.

Since the moment I walked in the door at The Center, I felt at home and where I should be.  Every single person at the firm has been overwhelmingly welcoming and helpful.

Nick was born and raised in Livonia, where he purchased a home in 2010. When he’s not working, Nick is a self-proclaimed die-hard hockey fan and loves to golf in the summer and to hunt in the fall. “Other than sports, I just enjoy spending time with my fiancé, Robin, and our one year old Black Lab, Jax.”

Before joining the Center, Nick began his career in 2006 as an intern at a small independent financial planning firm while attending college.  He graduated in 2008 with a bachelor’s degree in finance from EMU and obtained the CFP designation in 2012.  In the coming years, he wants to return to school for a master’s degree. 

Managing Partner Tim Wyman adds the following.

Nick has amassed a tremendous amount of knowledge and experience in a short time and he will be yet another asset for our clients.

Top 3 Elder Care Planning Mistakes -- #3

 So, you’ve designed a plan to address the challenges you may face as you age.  You’ve taken action to put the plan into place.  So, all of your bases are covered…right? One last step is needed to complete the Elder Care Planning process...

Mistake #3 – Failure to COMMUNICATE! 

To who, you ask?  First and foremost, you should communicate your plan to your family and/or other important people in your life who might play a part in making sure the plan is put into place as designed.  If those who might help support you in the future aren’t aware of your desires and of the legal, financial and care plans you have put into place, all might be for naught!  Additionally, you should communicate your Elder Care plan to your professional partners…your financial planner, your attorney, your CPA and/or any other important professional advisor who might play a part.  It is important for all of these team members to know the game plan to help ensure that your future Elder Care plan will be a success.

If you would like to discuss Elder Care Planning for your future, feel free to contact me at Sandy.Adams@CenterFinPlan.com.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Planners’ Perspective: The story of the “accidental professional”

 Part 2 of a series that will shed some light on who we are and why we love financial planning. Partner Dan Boyce wasn’t always conducting business at the Center. In fact, he conducted in an entirely different realm before he found financial planning.

The year was 1979 and, as a musician, I had just finished leading and conducting a successful performance of the Troy Community Chorus in Handel’s Messiah.  I was an independent contractor in the Troy Community Education department and was required to attend a continuing education workshop on a Saturday.  At my table, I was seated with a woman who offered “financial planning” as a Community Ed course selection—I was floored, at the time, that one could actually make a living doing this type of work.  This subject had always been an interest of mine, but I stumbled into financial planning almost accidentally when the profession was still in its infancy.

Within two years of that chance meeting, I had started my CFP designation, gotten licensed in securities and insurance, and hung out my shingle.  I took an educational approach to developing a clientele—teaching hundreds of folks in the basic tenets of financial planning—and my clientele grew rapidly.  Many of those early clients are still with the Center.  I helped start two firms, the second of which became the Center for Financial Planning in 1985, and I’ve never looked back.

I tell my clients that, as proud as I am of the work I have done with them over the years, I am most proud of the sustainable organization that I helped create and build.  We, at the Center, hire carefully chosen and extraordinary people who are fully dedicated to helping our clients meet their goals and achieve their dreams. 

Top 3 Elder Care Planning Mistakes -- #2

 

In my previous post, I referenced the top Elder Care Planning Mistake – Failure to Plan.   Once you have remedied this mistake and have actually completed your planning, what might be your next mistake?

Mistake #2 – Failure to Implement

Failure to implement is not just an Elder Care Planning mistake – it is a mistake that comes with many types of planning.  You have put in the work to address your planning strategies and you have worked with your financial planner, attorney, care professional and others to lay out a detailed plan.  Then what?  Many find a nice place to store the written plan and documents, and set it aside, assuming that everything is set for the future.  WRONG!!

Just because the plan is in writing doesn’t necessarily mean you’re covered.  If you have drafted legal documents, there is very likely action needed to implement the legal plan. This action may involve making titling changes on property and investment accounts, updating beneficiary designations on retirement accounts and insurances, or even shifting assets from one account to another. If you have a financial plan to address future Elder Care issues, this often means acting on the plan and meeting with your financial planner at least annually to make sure that you remain on track.    Acting on the plan and implementing the plan is as important as making the plan in the first place.

Click here for Elder Care Planning Mistake #3.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Kick-starting the School Year

 If you are a parent, you no doubt remember that first day sending your child to kindergarten.  If you were like me, you were as nervous as they were (or maybe more). Would they like it?  Would they fit in?  Would the school call and say come get your child?  Well, on August 7th my wife Jen and I sent one of the kids off to school. This time it was our oldest Matt.   Matt will be a sophomore at the University of Kansas.  Matt, a soccer player in high school, made the KU football team as a place kicker.  So while his studies will not start for a few weeks - he is off to football camp.  The initial depth chart has him as one of three competing for the starting place kicker job and we couldn’t be more proud.  And, much like Matt's first day of kindergarten, we're a bit nervous to boot!  While he may or may not ever get a chance to kick in front of 60,000 screaming fans - he has several fans at home wishing him and the Jayhawks well and good luck.  

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