Transferring Wealth with a Stretch IRA

Want a way to flex some retirement planning muscle? Then consider a "stretch" (inherited) IRA. Not only can this strategy preserve wealth for future generations, it also has the potential to keep assets growing in a tax-deferred account for years to come. Here's the inside scoop, based on one hypothetical family situation.

One Scenario
Imagine that George has accumulated $50,000 in a traditional IRA. His wife, Amy, should be well cared for through a $500,000 life insurance policy, his work pension plan, as well as several pieces of real estate and investment accounts they have transferred to a trust. Although Amy is also the beneficiary of his IRA, he wonders if it might be better to leave the IRA to their 25-year-old son Robert.

George meets with his financial consultant and finds out that in 2002, the IRS finalized rules simplifying the process of taking required minimum distributions — that's the minimum amount that you must withdraw each year from tax-deferred retirement accounts after you reach age 70 1/2. The new rules extend the IRS's life expectancy table, reducing the amount that must be withdrawn each year and making it much easier to "stretch" IRA assets to future generations.

Weighing the Benefits
George discovers that a non-spousal beneficiary of an IRA can receive distributions based on his or her own life expectancy. That means if Robert is the beneficiary of the IRA, the distributions could be stretched out over his entire lifetime.

Alternatively, Bob could name both his wife and son as primary beneficiaries. If Amy decided she didn't need the income from the IRA, she could then allow Robert to become sole beneficiary of the account. Yet another possibility: George could bequeath the IRA to his one-year-old granddaughter Heather, allowing her to take advantage of tax deferral by taking distributions over a potentially even longer period of time.

"This is complicated," says George to his financial consultant. "We want to be sure we haven't overlooked anything and that we're making the best move for us and our family. At the same time, this appears to be a tremendous opportunity to pass on wealth to future generations."

Have you determined how your retirement accounts fit into your overall estate plan? Consider discussing this topic with your financial advisor.

© 2010 Standard & Poor's Financial Communications. All rights reserved.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Tracking #623066

Life Insurance: Protecting Today's Assets and Tomorrow's Heirs

Many people obtain life insurance when they first have children and then forget about it, except for when the premium bill comes due. But an effective financial plan includes reexamining your life insurance needs continually throughout your life to ensure the assets you've accumulated are protected and to provide additional opportunities to create wealth.

Estimate Your Needs
Before assessing your insurance needs, look at your annual income. Then tack on one-time expenses, such as a mortgage, debt, and college tuition bills for your children. Remember to consider the amount you still need to invest to fund your retirement. Also factor in your final costs — estate taxes, potential uninsured medical costs, and funeral expenses.

Another factor to consider when purchasing life insurance is whether to also use it to help complement your savings efforts. Because some types of life insurance have a tax-deferred savings component, it may offer you an additional way to save for the future.

Choices, Choices
Next, figure out which type of life insurance is best for you. Many younger people opt for term insurance because of its relatively inexpensive cost. The policy is written for a set period of time and may be renewed (although the premiums usually increase each time you renew).

Mature investors may wish to consider a permanent policy, which combines life insurance coverage with a tax-deferred savings vehicle and is generally more expensive than term. You pay the premiums and receive a fixed death benefit that might potentially rise depending on the policy's cash value. Part of each premium accrues as cash value, and you may be able to borrow against the accumulated cash tax free.

In addition to the broad categories of term and permanent, there are a variety of other life insurance choices available — any of which might be appropriate for your situation.

Estate Planning
Some people use life insurance to fund an irrevocable life insurance trust to either create or transfer wealth for future generations, fund estate tax liabilities, or to help manage small business succession issues. This type of trust helps to preserve assets because, if drafted and executed properly, the death benefit is not subject to estate taxes. It also offers the benefit of flexibility. For example, it may be set up to allow a surviving spouse to receive regular payments from the insurance policy or to set aside assets for a minor. Drawbacks are that you lose control over the policy, insurance premiums could be expensive, and you'll most likely pay legal fees to create and maintain the trust.

Seek Qualified Help
Different life insurance policies and their costs, terms, and restrictions can be confusing. Consider working with a financial or insurance professional to determine which type of life insurance best fits your needs. At a minimum, be sure to include your life insurance needs whenever you review your overall financial planning needs regardless of your age.

The policy is subject to substantial fees and charges. Death benefit guarantees are subject to the claims-paying ability of the issuing life insurance company. Loans will reduce the policy’s death benefit, cash surrender value and will have tax consequences of the policy lapses.

© 2010 Standard & Poor's Financial Communications. All rights reserved.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Tracking #623096

Is a Million Dollars Enough?

If your clients left $1 million to their family in the form of a life insurance policy’s death benefit, would it be enough? You may be surprised at the answer.

A Quick Case Study

Tom and Susan are a married couple with:

·         A $200,000 mortgage

·         Annual incomes of $60,000 each

·         Two children, ages 2 and 4

In the event Tom or Susan should pass away, they want:

·         To provide for their children’s education

·         Their family to be able to pay off all expenses and debt

·         Their family’s standard of living to remain the same

·         The surviving spouse to retire comfortably

Upon the passing of one spouse, the other spouse receives the $1 million benefit. Subtract from that the mortgage, college costs of $95,000¹ and funeral and other final expenses of $5,000, leaving a lump sum of $700,000. A hypothetical return rate of 6% would create an annual income stream of $42,000. That amount replaces only 70% of the spouse’s missing income ($60,000) with no adjustment for inflation.

If Tom and Susan would like to maintain the annual pre-tax income of $60,000 (and assuming a 3% inflation rate and an annual pre-tax investment rate of 6%), the lump sum will last only 14 years.

¹  Based upon both children attending school with current tuition of $20,000 a year, taking into account 4% inflation and 8% return on a lump sum of money for 16 and 14 years, respectively.

In the case of Tom and Susan, a surviving spouse would only be able to maintain the family’s current standard of living for 14 years. What are your clients’ needs, and do they have the appropriate coverage in place?

This case study can serve as a valuable illustration and encourage a dialogue between you and your clients regarding the importance of proper life insurance coverage.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Tracking# 716056

Exp.  3/13

The Benefits of Bypass Trusts

Trying to predict the federal estate tax is about as easy as trying to predict the stock market. After a decade of almost yearly changes, the government has currently legislated a temporary fix that expires 2012. Given the uncertain nature of the tax, couples need to remain vigilant about estate planning. Bypass trusts can help a couple maximize use of the federal estate tax exemption and ultimately bequeath more of their wealth to successive generations.

For bypass trusts to achieve their goal, a couple needs to value their assets, title them appropriately, and review their estate plan every few years to determine whether the trust's funding mechanisms remain appropriate. Trusts are complicated legal entities, and it is important to seek advice from an estate planning attorney with experience in this area.

Why Consider Bypass Trusts?

A married taxpayer may bequeath an unlimited amount of assets to a spouse without triggering federal estate taxes, a practice known as the unlimited marital deduction. A missed opportunity can arise when a surviving spouse inherits these assets and subsequently dies with an estate that is worth more than the amount of the federal estate tax exemption in effect at the time. In this scenario, the estate tax exemption of the spouse that died first was not used and, in effect, was wasted. Bypass trusts address this situation by maximizing the exemptions of both spouses.

 

How Bypass Trusts Work

Couples often establish bypass trusts within the framework of a living trust that determines legal ownership of the couple's assets. Estate planning experts typically recommend that each spouse maintains a bypass trust with assets that are worth close to the value of the current estate tax exemption. Assets within the bypass trusts typically are those that the couple does not intend to use during their lifetimes but instead plans to bequeath to heirs.

Upon the death of the spouse that dies first, the surviving spouse inherits the decedent's assets that are not part of the decedent's bypass trust. Because of the unlimited marital deduction, there is no immediate tax liability for these assets. The surviving spouse is the beneficiary of the decedent's bypass trust, which will not be included in the surviving spouse's estate. The assets used to fund the decedent's bypass trust thus bypass the estate tax that otherwise would have been assessed upon the death of the surviving spouse. When the surviving spouse dies, the couple's heirs become beneficiaries of both bypass trusts.
If you believe that a bypass trust may be suitable for your situation, an estate planning attorney can help you learn more about the details.

© 2011 McGraw-Hill Financial Communications. All rights reserved.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Tracking # 1-024480

Insurance Needs for Every Stage of Life

Who needs life insurance? These days, the answer is, "Almost everyone." That includes:

Young Adults
As you might imagine, parents of minor children are at the top of the list of those who probably need life insurance. If one "breadwinner" were to pass away, life insurance payments could make it possible for the survivor to maintain the family's quality of life, send the children to college, and continue to set aside money for retirement and other long-term goals. But young adults don't necessarily need children to need life insurance. For example, newlyweds might purchase life insurance so that if one were to die, the other could use the proceeds to help repay significant debts, such as a mortgage or car loan. Generally speaking, life insurance is cheaper and more easily obtained at younger ages.

Empty Nesters and Retirees
Even if your children are grown up and financially self-reliant, life insurance may still be an important part of your financial strategy. After all, a widow or widower may still need to pay off a mortgage and other debts as well as continue to plan for a comfortable retirement. Naming grandchildren or adult children as beneficiaries of your life insurance policy may also enable those family members to accomplish important goals long after you're gone. Also, life insurance can help you accomplish a number of estate planning goals.

Business Owners
Offering life insurance as a workplace benefit can help a business owner attract and retain valuable employees. Also, naming the business as the beneficiary of a policy on a key employee can make it financially possible for the business to hire and train someone to replace that individual after his or her death. And life insurance proceeds can also make it possible for surviving partners or family members to eventually purchase a deceased owner's share of the business.

For information on the uses and benefits of life insurance at every stage of life, please contact your registered representative.

© 2010 Standard & Poor's Financial Communications. All rights reserved.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Tracking #623098