Category Archives: Estate Planning

5 Strategies for Reducing/Eliminating Your Estate Tax

As many of you know the estate tax exemptions and rates have been all over the board in recent years. For many Americans, this isn’t an issue. However, when you begin amassing a large enough estate this becomes a huge concern. Historically, passing away with a large enough estate has imposed upwards of 55% tax. For 2014, this rate is at 40% with a $5,340,000 personal lifetime exclusion. Below are 5 strategies you can use now to help mitigate any future tax burden you should incur.

EstateTax1. Start gifting smaller amounts
There is an annual gift exclusion of up to $14,000 per person per year. Meaning a married couple could collectively gift 28,000 per year per person without eating into any of their lifetime estate tax exclusion.

2. Gift highly appreciable assets now
Gifts of over $14,000 will still need to be reported on the federal Form 709 (and will consequently count against your lifetime limit) but gifting these assets now, instead of waiting, allows the appreciation to build with the recipient instead of counting against your lifetime limit later on.

3. Buy life insurance
Life insurance proceeds are not includible in your taxable estate and are, therefore, a good way of sheltering your net worth. Doing this essentially transforms taxable assets into non-taxable income once a death occurs (assuming the estate is not the beneficiary of the policy and the decedent is not the owner).

4. Use both exemptions
Currently, the tax code allows for the husband and wife to each claim a $5.34 million estate/gift exemption. If elected timely, any unused portion of a spouse’s estate can be transferred to the surviving spouse (called portability).

5. Take advantage of unlimited exemptions
When in doubt, be charitable! The IRS allows you to contribute an unlimited amount to the qualified charities of your choice. So if you are considering donating a portion of your estate and are over the exemption limitation this would be a terrific way of sheltering those dollars from taxation.

Courtney Elgin, CPA

Retirement Plan Fiduciary Responsibilities

Do you manage your company’s retirement plan in your day-to-day activities? Managing a retirement plan such as controlling the plan assets or using discretion in managing the plan makes you the plan fiduciary. According to the IRS, a fiduciary is a person who owes a duty of care and trust to another and must act primarily for the benefit of the other in a particular activity. Fiduciary is not just a title, but the very functions performed for the plan.

Important fiduciary responsibilities include:
– Acting solely in the interest of the participants and their beneficiaries
– Acting exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan
– Following the plan documents (unless inconsistent with ERISA)
– Diversifying plan investments
– Carrying out your duties as a fiduciary prudently, with care, and diligence

fiduciaryWho sets the standards for fiduciaries of retirement plans?

The Employee Retirement Income Security Act, also known as ERISA, set standards of conduct for those who manage employee benefit plans and its assets. It is important for the fiduciary to follow through with their responsibilities because they act on behalf of the participants in the retirement plan and their beneficiaries. According to the Department of Labor (DOL), the significance of being a fiduciary is acting solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them.

Carrying out duties prudently is one of a fiduciary’s central responsibilities under ERISA. In other words, a fiduciary should have knowledge and expertise in a variety of functions necessary to operate the plan. It is recommended to consult experts in accounting and investments to assist in carrying out your fiduciary responsibilities the best that you can.

It goes without saying, the responsibility of being a fiduciary should not be taken lightly. It is a big responsibility and often times businesses hire someone to act as their fiduciary to handle the responsibilities set forth above. Even if you hire a financial institution or retirement plan professional to manage your plan, you retain some fiduciary responsibility for the decision to select and keep the service provider. You should document your selection process and monitor the services provided to determine if you need to make a change.

By: Aubrey Forche, Staff Accountant

Creating a Winning Succession Plan

Few business owners plan their exits from their businesses with as much care as they planned their entries. Just as every owner starting out needs a business plan, every owner looking to retire needs a succession plan to help transfer ownership and to achieve his or her retirement goals.

The Four Goals of a Succession Plan

While situations vary from business to business, most well-thought-out plans are designed with some or all of these objectives in mind:

  • Protecting the company’s value and ability to compete
  • Minimizing conflicts among family members
  • Reducing gift and estate taxes
  • Achieving the owner’s retirement goals.

Start Early

succession-planningStarting work early on a succession plan may help ensure a smooth change of ownership. An early start helps those family members who are active in the business to grow into their new roles and responsibilities over time. Moreover, starting early provides the opportunity to make changes to the plan, if necessary, before the actual transfer of control.

As a business owner, you should be careful not to attach provisions to the transfer of ownership that could limit the ability of the business to grow and compete in the future. Some business owners have included provisions in their wills or in the company bylaws that, for example, limit the level of debt the business can carry or restrict the types of opportunities the company can pursue.

A succession plan is also an effective tool for minimizing your estate taxes. You can capitalize on the $14,000 federal gift-tax annual exclusion by giving your children company stock over time. However, it’s important that you determine the fair market value of the shares you transfer so that you don’t run afoul of the IRS.

Letting go of the business you have spent a lifetime building is a huge decision. That’s all the more reason why you should take the time to do it correctly. We can help you put together an effective and workable succession plan. Please give us a call.

When Marriage Ends in Divorce or Separation

The end of a marriage is also the beginning of a new financial life. Reconsidering your financial arrangements — whether or not your income will be reduced — should be a priority as you adjust to your new circumstances. The major issues demanding attention and resolution include the following.

Retirement Issues

  • The QDRO. A divorce settlement often determines how any anticipated future pension and/or retirement plan benefits will be divided. You may receive part of your ex-spouse’s retirement benefits, or your ex-spouse may receive part of yours. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a Qualified Domestic Relations Order (QDRO). If you are to receive benefits from your ex-spouse’s plan, you must follow through on obtaining the QDRO and ensuring that the plan’s administrator receives it.
  • Change of beneficiary. The individual you have named as the beneficiary of your retirement plan account will automatically receive all the funds in your account after your death. A divorce or other agreement generally has no effect on a beneficiary designation. Therefore, you must formally amend the appropriate plan documents to name someone other than your ex-spouse. As soon as your divorce becomes final, you should give your plan administrator a new beneficiary’s name. Also, be sure to change the beneficiary on any IRAs you may have.
  • Adjusting retirement plans. Your financial future may look very different without your spouse. You may be able to improve your lifestyle after retirement by taking advantage of additional current contributions to your 401(k) or other tax-deferred retirement plan. You might also consider contributing to a Roth or other IRA to supplement your employer’s retirement plan.
  • Social Security. Your ex-spouse’s work record may entitle you to receive a benefit once you are at least 62 years old and meet the law’s conditions. So, after a divorce, it is a good idea to call the Social Security Administration to inquire about any benefits you can expect to receive.


Le divorceYour new marital status may mean a shift in your investment goals and, therefore, in your investment strategy. Your present assets may be more or less risky than you will want in the future. You should also examine your new living costs to make sure your arrangements are realistic for your income and needs, and to decide how much and how often to invest for the future.

Financial Documents

 After a divorce or separation, a general review of all your financial documents is advisable. In light of your new situation, be sure to examine the following.

  • Estate plan. If your spouse is your heir, you need to revise your will to name another beneficiary(ies). Also, marital status is often a key factor in planning an estate. You should review your present plan with your professional advisor to update it for your new situation.
  • Life insurance. The change in your marital status most likely will require a reevaluation of your life insurance policies and, at the least, a change in your beneficiary designations.
  • Credit records. It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.

Get Professional Assistance

A divorce or separation may give rise to numerous tax issues, and a settlement agreement that reduces taxes may benefit both sides. Professional legal and tax advice is essential as your agreement is being negotiated.

Trusts — Filling a Role in Your Financial Plan

shutterstock_15990961Would a trust help you accomplish some of your financial and estate planning objectives? Trusts can be used to address a variety of concerns, including protecting and distributing your assets, managing taxes, and achieving your charitable goals. The assets in a trust are managed according to your wishes by the trustee you choose.

Not Just for the Wealthy

Trusts are very flexible arrangements and offer many different planning options that can be tailored to fit your situation. Here are some ways a trust can be used for your benefit or for the benefit of others.

You can establish a trust to:

• Manage the distribution of assets to beneficiaries based on criteria you establish

• Manage assets and provide recordkeeping for financially inexperienced beneficiaries

• Provide for management of your financial affairs if you become ill or incapacitated

• Protect financial interests of your children from a previous marriage

• Secure funds to provide for special needs dependents, including disabled children, elderly parents, or other relatives

• Minimize exposure to estate taxes and/or probate costs

• Benefit a charity while still providing for loved ones

• Keep the affairs of a business private and help to preserve it for family members

A Helping Hand

If you do decide to establish a trust, make sure you have confidence in a potential trustee’s ability to properly manage your affairs before you make a selection. You might want to consider naming an institution such as ours as trustee or co-trustee to obtain the benefits of professional management services and an unbiased perspective.

Social Security Eligibility

Social Security is a topic that is often discussed but do you really understand the scope of Social Security benefits. While Social Security may be thought of as primarily a retirement program, many others are receiving benefits due to disability, or death of a wage earner. As a result you or your dependents may be eligible for benefits at any age.

How do you become eligible for retirement benefits? In 2014 a wage earner will accrue one credit for each $1,200 in earnings, up to the maximum of four credits per year. The amount needed to accrue one credit is adjusted annually. To be eligible for benefits a wage earner will need to accrue a minimum of forty credits over their working life. For younger wage earners with dependents the requirement for eligibility for survivor benefits takes a minimum of six credits earned in the prior three years before date of death, and for disability benefits it is a calculation of credits needed based on the age at which the wage earner becomes disabled.

According to the Social Security Administration, approximately 165 million people are paying Social Security taxes and about 58 million people receive some sort of monthly Social Security benefit.

So whether you are just starting your working career or are looking forward to ending your working career, Social Security can touch the life of almost every American.

By: Christine Schultz, Accountant

Retirement Plan Beneficiary Designations

shutterstock_96898810Have you double checked your beneficiary designations lately? Do you know who your beneficiaries are?

Before you file away those year-end statements, take the time to verify your beneficiary designations. Sure you are saying to yourself, I know who I wrote down on the form when I filled out all the account paperwork. Or at least you think you know. How long has it been since you enrolled in your employer’s retirement plan? When, exactly did you purchase that life insurance policy, open your IRA at the brokerage firm or mutual fund? You probably haven’t given it much thought since then so a periodic review is a wise move.

Why is it so important?
One of the most common misconceptions is that everything you own will pass according to the terms outlined in your will. However, beneficiary designations on life insurance contracts and retirement plan accounts take legal precedence over any wishes you might express in your will. Further, some state laws control succession if a named beneficiary predeceases you or a will is contested.

You work hard and have diligently saved over the year and your retirement accounts may be among your largest assets. So while you may have taken a lot of time discussing with your attorney exactly how you want your assets distributed after your death, it could all be for nothing as far as these particular assets are concerned.

Part of your overall Estate Plan
Proper beneficiary designations should be integrated into your overall estate plan.

If your marital status has changed since you first filled out the paperwork, have you timely updated the beneficiary forms? Or will your ex-spouse be pleasantly surprised to learn he/she has just experienced a financial windfall from you?  If  you  have welcomed a new baby into your life or you are now part of a blended family, you would not want to have some of your children receive assets from your estate while others are accidentally left out.

If you wish to bequeath assets to friends and relatives who are not immediate family members, beneficiary designations may serve the purpose. Most states have laws governing the rules of succession, but these generally don’t provide for individuals outside the immediate, legally recognized family. Naming charitable beneficiaries could help avoid income taxes on the benefits. Your estate plan might benefit by leaving nontaxable assets to your family members and retirement assets to your favorite charity.

Assets with designated beneficiaries generally pass immediately, outside the probate process. This affords the beneficiaries a degree of privacy and ready liquidity. Also, the ability to “stretch” the benefit payouts over a beneficiary’s lifetime could be important. If you’re leaving IRA money to a child or grandchild, this benefit could be substantial-allowing tax deferred growth to continue for many years.

My Plan Custodian Has My Beneficiary Designations on File
Don’t be so sure! Over the past few years, there have been numerous mergers, acquisitions and re-locations. Often, back office functions have been combined, moved or downsized. Unfortunately, adequate recordkeeping sometimes does not survive these changes. Experience has shown that occasionally the signed forms are nowhere to be found. Where there is no record on file of the designated beneficiary, trustees usually have default beneficiaries in the account agreement. These might not be who you had in mind! Our suggestion: Ask for a written copy! Keep the copy among your most important papers.

After a lifetime of planning, saving and investing, making the effort to assure your beneficiary designations are in order may provide you with the comfort of knowing that your wishes will be carried out after your death and your loved ones can reap the benefits you intended.

By: George Monger, CPA