Varian Law LLC

Inheriting an IRA

If you inherit an IRA, you need to carefully consider your options and tax consequences.

Americans hold a staggering amount of wealth in individual retirement accounts ("IRAs").

That means that many people who have IRAs will eventually pass them on to their beneficiaries.

While that can be great news for those who inherit the accounts, it can also turn to bad news if the beneficiaries make the wrong decisions about what to do with those accounts.

Recently, Forbes discussed what some possibilities are for beneficiaries in "What To Do If You Inherit an IRA."

The single most important thing to keep in mind is that an Inherited IRA can be the source of lifetime payments or it can be a source of a very large and immediate income tax bill.

If you are smart, then you will want it to be the former, unless you absolutely need a large sum of money right away.

The general rule of thumb is that you should never take more out of an Inherited IRA than you are absolutely required to take by law. It is recommended that you take no more than the required minimum distributions.  Exactly how much that is will depend on several factors and a complex set of rules.

That is why you should never make a decision about what to do with an Inherited IRA without seeking the advice of an experienced estate planning attorney or accountant.

Reference: Forbes (July 10, 2017) "What To Do If You Inherit an IRA."

Millennials Expect Parents and Children to Help Them Retire

Millennials expect both their parents and their own children will help them in retirement.

Millennials expect that their parents and their children will help them out in their retirement years, according to Financial Advisor in "Millennials Want Family Help in Retirement."

 

61% of millennials expect to receive an inheritance from their parents that will help them in their own retirement.

Many millennials also expect to receive retirement help from their own children. Their other retirement expectations are often similarly unrealistic.

On average, they expect to retire earlier than they probably will and they expect to live fewer years as retirees than is likely.

These misconceptions combine into a big problem for the millennial generation.

By relying on family members and having unrealistic retirement expectations, they risk not saving enough money now. By the time they realize their mistakes, it might be too late to do anything to correct them.

It is important that parents of millennial children talk to them about setting realistic retirement and inheritance goals.

Reference: Financial Advisor (June 6, 2017) "Millennials Want Family Help in Retirement."

 

Determining the Inheritance to Leave to Your Children May Be a Challenge

Should you leave your children your entire inheritance outright?

This goal of determining the correct amount of an inheritance to leave your children outright can be a challenge, according to the Wills, Trusts & Estates Prof Blog in "New Focus for Estate Planning."

The key to resolving this tension is to understand that estate planning is about more than just transferring your assets to your heirs.  With a basic Will, heirs will generally receive all of the assets at once, which does not protect against the assets being mishandled, attacked by creditors, or subject to taxes.

There are many different types of trusts that can achieve numerous goals, such as (1) protect your assets from your beneficiaries' creditors (e.g., an ex-spouse), (2) provide you with dispositive control, (3) provide tax savings advantages, and (4) properly manage your assets.

An experienced estate planning attorney can guide you in creating the estate plan that fits your unique circumstances and is in the best interest of your heirs.

Reference: Wills, Trusts & Estates Prof Blog (May 17, 2017) "New Focus for Estate Planning."

Should You Treat Children Fairly or Equally?

It is easy to treat your children equally in an estate plan, but that may not be fair.

Dividing an estate unequally, but fairly, can be a very difficult task in estate planning, according to the Wills, Trusts & Estates Prof Blog in "Dividing Your Wealth Among Your Children."

Most of the time dividing an estate equally is a fair way to divide a parent's estate and one that the children accept. That does not always work, however, because as every parent eventually learns treating children fairly does not always mean treating them equally. That holds true in estate planning.

Adult children can wind up in very different life circumstances for a variety of reasons. For example, if one child became wealthy after receiving a large gift from his parents to start a business, it might not be fair to treat that child the same in an estate plan as another child who went into public interest work.

The biggest problem is figuring out how to make the unequal division without causing any of the children to dispute the estate. Trusts are extraordinarily helpful in these situations, since they are much more difficult to challenge.

Parents can create a trust with an independent trustee and give the trustee the power to make distributions to the children based on their circumstances and needs. It is also important that parents who are leaving unequal inheritances for their children talk to the children and let them know the reasons for doing so.

An experienced estate planning attorney can advise you if you need to create an estate plan with unequal inheritances that are actually fair.

Reference: Wills, Trusts & Estates Prof Blog (May 5, 2017) "Dividing Your Wealth Among Your Children."

A Fresh Look at Disinheritance Rules

Tennessee has an exception to the rules governing how to legally disinherit a child.

The Supreme Court of Tennessee has agreed to hear the case of some children who were not mentioned in a will, according to the Times Free Press in "Tennessee Supreme Court agrees to hear J. Don Brock estate challenge."

The case resulted after J. Don Brock, the late CEO of Astec Industries, wrote many Wills during his lifetime. He executed new Wills in 1994, 1998, 2006, 2012 and 2013.  His first three Wills all did different things with regard to his five adopted children.  They were given various amounts of money or cut out from receiving anything in the different Wills.  The last two Wills did not mention the adopted children at all.  They claim that was done by their stepmother in order to preserve the assets of Astec Industries for herself.

The main issue in this case is a 110-year-old decision by the Supreme Court of Tennessee that created what is known as the Cowan Rule, which limits the ability of potential heirs to challenge a Will if they were not mentioned in the previous Will.  The adopted children lost in the lower courts because they were not mentioned in the 2012 Will.

The rule makes some sense.   Why?

In Tennessee, merely having the 2013 Will ruled invalid would not create an inheritance for the children, since it would just validate the 2012 Will (unless it is also successfully challenged).  However, this is not how other states handle disinherited children.

In other States, it is presumed that if a child is not mentioned in a Will at all that it was a mistake and the child can challenge the Will regardless of what an older Will might say.

An experienced estate planning attorney can advise you on the laws of your State as well as guide you in creating an estate plan that meets your unique circumstances.

Reference: Times Free Press (March 21, 2017) "Tennessee Supreme Court agrees to hear J. Don Brock estate challenge."

A Trust Could Prevent People in Distress From Signing Away Their Inheritance

A parent may be shocked when their child gives away their inheritance for some quick money.

A recent MarketWatch article described the anguish of being distressed and giving up your inheritance for some quick money in "My drug-addicted friend signed away his $800,000 inheritance to his brother — now he’s clean, can he get it back?"

A reader wrote in with a story about a friend who inherited $800,000 from his father's will. The friend was addicted to drugs and agreed to sign his rights to the inheritance away to his own brother for only $10,000.

Now that the friend is sober, the reader wonders whether there is any way to get the inheritance back.

The column writer suggests that the friend hire an attorney and sue the brother for fraud based on the premise that he knowingly took advantage of someone who was mentally incapacitated. That might work in some cases.

But not so fast.

There are some states and courts that are not quick to undo agreements that drug addicts voluntarily enter into, especially if it cannot be proven they were high at the time of making the agreement.

This is the type of scenario about which many parents have nightmares, when it comes to their addicted children. Leaving the child an inheritance outright can quickly be lost.

Fortunately, there are ways to avoid the problem altogether without disinheriting the drug-addicted child.   Various forms of Trusts can be used to protect the inheritance with a trustee who is granted the discretion to distribute the money for the benefit of the child.

A qualified estate planning attorney or trust attorney can guide you in a plan that fits your unique circumstances.

Reference: MarketWatch (Jan. 24, 2017) "My drug-addicted friend signed away his $800,000 inheritance to his brother — now he’s clean, can he get it back?"

Will Wealth Concentration Impact Estate Tax Debate?

A new study in the United Kingdom provides insight into new thinking about the social justice of Estate, Inheritance and/or “death” taxes.

Income inequality and wealth concentration are more than just media headlines describing the latest protest movement. These terms are seemingly everywhere today: from the work of economist Thomas Pikkety, to the Occupy Wall Street Movement, to every speech given by Senator Bernie Sanders and even to the pages of The Economist.

A study conducted in the United Kingdom was recently reported in The Independent article titled "Inherited wealth will decide how rich young people will become, a study warns." The findings suggest that changing economic forces –  including rising home prices, stagnant wages and diminishing pensions -- are limiting opportunities for the younger generations. According to this study, the wealth of Great Britain’s young people will not come from their own hard work, but will instead be primarily determined by the inheritance provided by their parents.

As a result, many young people are protesting the repeal or cuts in the Inheritance Tax and the Estate Tax as a matter of social justice.  As one Democrat was quoted as saying, “It cannot be right that the wealthiest families amass vast fortunes, while millions of young people see their incomes fall and home ownership slip out of reach.”

While this study focused on the United Kingdom, it may also strike a cautionary note for us in the United States. As the new Congress and our new President contemplate the future of our Estate Tax, the debate may turn at some point to discussions of income inequality, wealth concentration and the social justice of Estate Taxation.

Reference: The Independent (January 5, 2017) "Inherited wealth will decide how rich young people will become, a study warns."

Wills are Suddenly Important in China

An ongoing crisis with Wills and Estate Plans plagues China.

A particularly difficult estate planning issue in China was reported recently by USA Today in "Chinese don't have wills -- and now it's a big problem."

Not too long ago, the Communist Party in China had strict rules about the accumulation of wealth and passing it on to heirs. During the Cultural Revolution, things were very simple. A person could not accumulate wealth at all, so there was nothing to pass on.

Because of the culture of the Communist Party in China, a person could not accumulate wealth to pass it on to the next generation.  However, the party has since loosened its rules and many Chinese people are now extremely wealthy.

Unfortunately, most of them do not have estate plans and that is causing problems.

The Chinese courts have seen a flood of inheritance disputes that are clogging up their system and slowing down affected business. Families are fighting over this new wealth in the country and even the Communist Party is growing concerned.

It is estimated that only 1% of the country's senior citizens have Wills. Even those who do have Wills of some sort, cannot avoid issues.

Some 60% of Wills challenged in the country are found to be invalid. The Communist Party is now actively encouraging people to get proper Wills.

While the problem is not as severe in the U.S., too many people here also do not have valid Wills, and that causes the same problems for their beneficiaries as the Chinese have.

An Estate Planning attorney can guide you in developing your own unique estate plan.

Reference: USA Today (Jan. 2, 2016) "Chinese don't have wills -- and now it's a big problem."

Money May Not Be the Root of Family Estate Disputes

If one watches an estate dispute among wealthy families in the media, they sometimes find out that it isn’t just about the dollars.

Traditionally feuds are over wealth, crown or other inheritances and are considered to be about money. Generally speaking, however, something deeper is going on, according to Psych Central in "Death, Wealth, and the Psychological Anatomy of a Family Dispute."

In the U.S., the participants in a family estate fight no longer enlist armies and fight it out on a field of battle. Instead, people today fight things out in Court. However, the reasons for today’s disputes are very similar to what they were hundreds of years ago.

Psychologists and even pop culture have known for a long time about sibling rivalry. Although there is disagreement about the core reasons for the phenomenon, no one disputes that it exists. Whether it has its roots in birth order, a desire to be loved more by parents or something else, sibling rivalry is a real thing that does not go away when children grow up.

The same psychological reasons that lead siblings to argue over who gets to ride shotgun in the car are the same reasons that lead to arguments over estates.

Knowing sibling rivalry exists and making estate plans with it in mind, can sometimes make for a smoother process.

Reference: Psych Central (Dec. 13, 2016) "Death, Wealth, and the Psychological Anatomy of a Family Dispute."

Just How Difficult Is Estate Planning?

With proper professional guidance, Estate Planning is likely to be a lot easier than you think.

As with most tasks, there are many reasons to be found for putting them off. A columnist details the challenges that she and her husband faced with their Estate Planning in an article in The Gleaner "HARDY: No reason to delay estate planning."

The article is both instructive and enlightening. The writer details how once she and her husband came to an agreement about their children, the process of getting an Estate Plan was not as difficult as they thought it would be.

This might be because they took the critical step of going to an experienced Estate Planning attorney instead of trying to do things for themselves.

The attorney provided them with guidance and questions that allowed them to think about things that they had not even considered.  If the couple had tried to create their own estate plan, they likely would not have completed it properly because of the things that they did not know or consider.

An experienced Estate Planning attorney can guide you through the not-so-difficult task of creating an estate plan that is appropriate for your unique circumstances.

Reference: The Gleaner (Dec. 10, 2016) "HARDY: No reason to delay estate planning."