You’ll often read news articles or blog posts about saving for retirement—when to start, how much to save, what savings or investment plan is best—but there’s an important retirement topic which often goes underreported: How these retirement accounts impact your heirs.

As noted by this article in the Wall Street Journal, “The new, higher threshold for the federal estate tax has many heirs happily thinking they won’t have to surrender a big piece of their inheritance.” But these heirs “may need to think again if they’re in line to receive a lot of money from tax-protected retirement accounts like 401(k)s and IRAs.”

Many (if not most) retirement assets these days are IRD assets, this is “income in respect of a decedent,” and it means that the assets are income earned by a person, but not taxed or received before that person passed away. These IRD assets can be wonderfully beneficial to the investor… but they can be an unpleasant surprise for heirs, who will end up paying the taxes on these assets.

“Heirs who receive retirement accounts often pay far more tax on IRD than they have to, collecting payments from the plan but failing to take an annual deduction that is available to beneficiaries. Sometimes that’s because the tax attorney who planned the estate knew about the deduction, but the accountant who prepares the heir’s taxes doesn’t.”

Some of the solutions suggested in the article are to take advantage of a recent rule change which allows many IRD savings accounts to be converted to Roth 401(k)s. Taking advantage of this and converting the money to a Roth allows the owner to pay any applicable taxes now, so that heirs won’t be liable. Another option is to move money from the IRD retirement account into an irrevocable life insurance trust, thus removing it from the taxable estate.

“People need to refocus their thinking on what heirs are truly inheriting.” Our office can help you do just that. A little bit of thought and action now can save your heirs a lot of taxes and confusion down the line, and this is especially true if you are lucky enough to have a significant amount of savings that you anticipate passing on to your children or grandchildren.

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Everyone knows that entrepreneurs and small business owners often march to the beat of a different drum. After all, in order to start (and keep) a successful business you have to have a somewhat different and dynamic way of looking at the world and its possibilities. But this different way of looking at the world doesn’t always work in their favor.

This article in Entrepreneur.com points out that “In some ways, planning and saving for retirement runs contrary to the typical characteristics of successful entrepreneurs… Does planning for retirement make you a pessimist who assumes your business will never grow big enough to be sold for millions of dollars, making retirement savings irrelevant? Does relying on a retirement nest egg mean you’ve lost the entrepreneurial confidence you once had?”

Entrepreneurs and small business owners often feel the best investment in their future is to invest in themselves. Where an employee in a large corporation is likely to take any investment income and put it in stocks or savings, a small business owner is more likely to turn around and put that money back into growing her own company.

Contrary to what the dedicated business owner may think, it’s not pessimism to save for retirement—even as an entrepreneur; it’s just plain common sense. Luckily, there are ways for entrepreneurs to invest and save that don’t feel as if they’re taking away from their investment in their business. The article mentions cash balance pension plans, zero coupon bonds, individual retirement accounts and 401(k) plans.

But in addition to planning for your own future, you need to plan for the future of your business as well. After all, you won’t be around forever, and your successful business should be the legacy you leave for generations to come. Planning the successful transition of your business requires a comprehensive, well thought out, and flexible business succession plan. This is where our office can help. Whether you plan to leave the business to your heirs, sell it to pay for your children’s futures, or transfer your shares to a partner, our firm will be there to guide you every step of the way.

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When it comes to retirement planning you can find suggestions, rules and guidelines of just about every shade, but it wasn’t until this article in the U.S. News and World Report that we’ve seen the biblical “7 Deadly Sins” applied to retirement planning. The tone of the article is light and tongue-in-cheek, but the advice it contains is serious and spot on.

Planning for retirement can often feel overwhelming to anybody without a background in economics or investing, but the use of the well-known and easily remembered religious/literary reference makes planning for your retirement a little more relatable. For example, the concept of diversifying your portfolio becomes easier to understand when related to the sin of greed:

“Greed is a killer when it comes to your investment portfolio. Greedy investors often chase past results, choose higher risk investments, or don’t do their research before investing. This can lead to falling for scams, buying at the top of the investment bubble, and other problems. Solution: Start with a balanced portfolio, research all investments thoroughly before buying, and remember that if an investment sounds too good to be true, it probably is.”

And of course who could ever forget the ever-popular sin of lust: “Lust can be equated to extravagance and longing to the point it becomes all-consuming. Signs of giving in to lust include spending too much on luxury items and living beyond your means. It could also mean having champagne taste on a beer budget. Excessive spending can lead to unmanageable debt if left unchecked. Solution: You need a budget and you need to stick to it.”

The article tackles sloth, pride, envy, wrath and gluttony in the same helpful and informative manner, reminding us that although retirement planning today—with our Roth IRAs, 401(k)s and online investment portfolios—may at times be complex, convoluted and fast moving, the principles behind it are well known and ages old.

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Most of us start thinking about retirement as soon as we get our first job. Even if we can’t start saving as much as we’d like right away, we know it’s there, looming on the horizon, and we think about it. The closer we get to retirement age the more we begin to consider our options and make specific plans. But even with all these years of thought and planning, U.S. News and World Report thinks that there may be a few things you haven’t considered in regards to your retirement. Although not specifically mentioned in the article, one of the things you probably haven’t considered is how your retirement savings will fit into your estate plan.

The first and most common option for distributing your retirement benefits upon your death is simply to name your spouse or children as the beneficiary (beneficiaries) of your retirement benefit plan; however, there is another way. A Retirement Benefit Trust (or Irrevocable Retirement Trust) can be used to keep retirement assets out of your spouse’s taxable estate upon your death. This may not be a big deal if your retirement assets are waning, but if retirement assets comprise a large portion of your estate then this can be a huge benefit.

A Retirement Trust also has the advantage of allowing your beneficiaries to stretch out the financial opportunities of your retirement assets. Instead of withdrawing the entire amount of your retirement savings right away (and paying taxes on the income) a trust allows your beneficiaries to make withdrawals over the course of their entire lives; not only stretching out the investment opportunity, but also helping to keep them in a lower tax bracket.

For more information on Retirement Trusts, and whether one could benefit you and your family, contact our office today.

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How long will your family business stay in the family? One generation? Two generations? How about 4 generations down the line?

The truth is that very few family business stay in the family beyond the first generation. Statistically, Only 40% of family owned businesses survive to the second generation, 12% to the third, and 3% to the fourth. There are many possible reasons for this, such as lack of interest by subsequent generations or the evolving market and economy, but one of the main reasons that family businesses don’t survive to the second and third generation is lack of planning.

Which families have been successful with succession planning for their businesses? This article in Business Week profiles the famous families of business, and includes some interesting discussion of why certain families are successful where others aren’t. Parent-child relationships often become fraught with tension when the time comes to pass the baton, but history has shown that succession transitions are much smoother when the occur gradually, and according to a plan created and agreed upon by ALL interested parties.

Business succession planning is a key element to owning your business at any step of the game, not just at retirement age. This is because it is not merely about exit strategy, but about making goals and planning for future success. Leaving the business to your children is not your only option. You may decide to sell your business, or leave it to a partner. The options are out there, if you only know where to find them.

This is where an estate planning attorney can help.

Whether your business is in its first generation or its fifth, whether you intend to pass it on to your children or sell it, planning is essential if you want your business to survive. Our firm can help you do just that. Whether through wills and trusts, or the succession planning described in this blog, it is our business to look to the future. Trust us to help you do the same.

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Last month the Obama administration released their budget for the 2012 fiscal year, and included in that budget were a few things that retirees (or those close to retiring) will want to be aware of. If you own a business you may want to keep reading as well, as some of the proposals within the budget would affect not only retirees, but also small business owners. This article in the US News and World Report describes some of the proposals included in the budget, including:

Automatic workplace pensions. This would require employers (with the exception of very small businesses) that do not currently offer a retirement plan to enroll their employees in a direct-deposit IRA account. Employees would have the ability to opt-out if desired.

Tax incentives to create retirement plans. This proposal would increase the value of the tax credit to small businesses that start new retirement plans. The current maximum credit is $500/year for up to 3 years, the new proposal would increase that to $1000/year.

More Social-Security funding. Obama’s budget would allocate $12.5 billion to the Social Security Administration, up $1 billion since 2010. The primary aim of this increase would be to “reduce the backlog of disability claims and decrease Social Security fraud.”

But not all of the proposals included in the budget are beneficial to retirees. Here are a few things you may want to watch out for:

Pension insurance premium increases. “The budget proposes giving the Pension Benefit Guaranty Corporation… the authority to adjust premiums and take into account a company’s financial condition when setting premiums.” Although this is certain to result in premium increases, the increases would be gradually phased in.

Senior Community Service Employment Program funding cut. The proposed budget would reduce funding for the Senior Community Service Employment Program by 45 percent, and would transfer the program from the Department of Labor to the Department of Health and Human Services. Seniors who hope to retrain for new jobs in their retirement years may find this more difficult to do than they expected.

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“Retirement”—It’s a word that goes hand-in-hand with “Baby Boomer” these days. After all, as has been pointed out over and over again, retirement is the issue of the hour as the first round of Baby Boomers hits that magic age. But what about the younger set? Is there anything that twenty- or thirty-somethings should be considering regarding retirement at this point in their lives?

Actually, according to this article by Steve Vernon at MoneyWatch.com, it is never too early to start thinking about retirement; and there is plenty for adults in their twenties or thirties to consider right now that can help them get a jump on retirement a couple decades down the line.

According to the article, “The challenge facing most people in their 20s and 30s is juggling competing priorities — usually there isn’t enough money in the budget to do it all… ‘Should I save money for retirement, a down payment on a house, or for my kid’s college education?’… How do you prioritize?” While all of these things are important, Vernon suggests that your first priority in your twenties should be yourself. He suggests that the best investments you can make at this time are in your career, your home, your health, and your spending habits.

What our firm would like to point out is that a large part of investing in those things mentioned above is protecting those things. An estate planner can help you decide how to best protect your home from taxes, lawsuits, or divorce; an estate planner can also help you protect your health with a living will or healthcare directive. Additionally, many young adults (frustrated with the current state of the job market) have decided to take employment into their own hands by starting their own businesses—and many have been very successful! An estate planner can help you with the overwhelming but necessary task of protecting and planning for the future of your small business.

The news may be flush with stories about (and advice for) Baby Boomers entering or nearing retirement, but we know that everybody can use help and advice when it comes to planning for the future. Our office can help you prepare for your best future—regardless of your age. Call us today.

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Planning for retirement can be tricky business. When we discuss our clients’ estate plans and assets with them we can’t help touching on retirement plans, so we hear a lot about the worries that go along with preparing for an uncertain future. There are many variables and unknowns that can crop up between starting out in your 20s or 30s and your eventual retirement at 60 or 70; and there are a lot of myths about retirement which are daunting, discouraging, or just plain misleading.

U.S. News and World Report recently published an article which attempts to address some of these myths and set readers back on the right track to retirement. We hope that all of our readers are already saving for retirement, but because we know just how important it is to save early and save often we’d like to list some of the myths here for our readers:

#1 You don’t make enough money to save for retirement.

#6 You need to be debt free before you can invest for retirement.

#8 Social Security benefits will be enough to retire on.

#9 You have to retire at age ___.

These are only 4 of the 10 myths covered in the article. Click on the link above for a full list of commonly-held assumptions about retirement that may be preventing you from making the most of your retirement savings.

At our office we help our clients protect and plan for the future, retirement is often a part of that future. If you have any questions about how to protect your retirement investments, or how to ensure that they transfer properly to your heirs if anything should happen to you, please call our office.

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Baby-boomers are called the sandwich generation—and with good reason. They were expecting to pay for their own retirement and their children’s college education; but now recession upon recession has toppled their elderly parents’ savings, and Boomers find that they are faced with the prospect of shouldering the financial burden of their parents’ final years as well. The pressure of providing for so many people at once can quickly become overwhelming, and using one’s own savings or retirement fund can begin to look like an easy solution to immediate financial concerns.

Although it may seem like an easy fix to looming financial debt, don’t give in to the temptation to use your own savings. Before you give in to fear and drain your retirement, get some professional financial advice. This special edition recently released in the New York Times shows that it is possible to prepare for what’s coming—both for your parents and yourself.

Our first recommendation is to discuss your situation with a trusted financial advisor. After that, one of the primary suggestions offered in the Times is to talk to your parents about their situation. It may not be easy; be prepared for your initial advances to be met with resistance. Aging parents often worry that they will lose control of their own finances, or that giving decision-making capacity to one child will lead to anger or hurt feelings among their other children. Instead of gearing up for a fight, the article mentions a few ways to gently lead into the conversation (including talking about family philanthropic projects.)

Another discussion you won’t want to skip is one about Long-Term Care Insurance. This article by Ron Leiber discusses different kinds of insurance, whether or not you’ll need it (you will), and how to pay for it.

The world of “old age” is changing. People are living longer, experiencing more long-term health issues, and without the same ability to rely on government “entitlement” programs as their predecessors. Serious discussion and serious planning are essential to surviving the challenges of the “new” old age.

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As the average life-span increases—and the cost of medical care along with it—more and more people are beginning to see the need for long-term care insurance. Simply having a retirement plan isn’t enough anymore. Saving for retirement now means not only saving for your living expenses, it means preparing and saving for your health care expenses as well; expenses which will most likely include major medical procedures, eventual in-home care, and perhaps even long-term nursing care.

The idea of long-term care insurance is no longer a new and strange one, but it’s still not a concept most people feel completely comfortable with. What kind of long-term care insurance should you be looking at? Can you get coverage for your entire life? (Probably not.) What types of care and services will be covered? (Each policy will vary.) Can you get a policy that goes into effect right away, or is there a waiting period? (There is often a waiting period.)

Not all long-term care policies are created equal. The U.S. News and World Report recently published an article advising 7 things to look at when choosing a long-term care policy. Some of the things you’ll want to pay attention to include the benefit amount, the benefit period, which services are covered, and inflation protection, just to name a few.

Choosing a long-term care policy is an important step, and not one to be taken blindly. If you are confused about long-term care policies, or unsure of which one may be right for you, don’t hesitate to ask the advice of a professional. Insurance agents, financial advisors and estate planners may all be able to help answer your questions or point you in the right direction.

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