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

Roth IRAs — Powerful Planning Tools for All Generations

If the current income restrictions associated with Roth IRAs prevent you from using one for your own planning purposes, consider taking steps to ensure that your children or other younger family members establish and fund a Roth IRA of their own. Roth IRAs offer ample tax benefits for retirement — particularly for younger investors. Yet perhaps the more long lasting benefit of the Roth IRA can be realized when it is used as a wealth transfer mechanism.

Roth IRAs for Minors
One of the main contributors to successful retirement planning is time — the more of it you have, the better the result. For this reason alone, setting up a Roth IRA for a child can be one of your best long-term planning strategies. When investment compounding has upwards of 50 years to run its course, even a relatively modest savings rate can produce substantial wealth.

There is no minimum age requirement for opening a Roth IRA, and many IRA providers will accept accounts for minors. In most cases, the only real issue is whether the child has taxable earned income. Fortunately there is no requirement that the same "earned income" is the money that funds the IRA. If your child earned income from a summer or part-time job, but then spent it, there is no restriction on using money provided by parents to establish and fund the IRA account.

You can contribute up to $5,000 to a Roth IRA in 2009 as long as your child earned at least that much. However, contributions cannot exceed your child's income for the year. Contributions to a Roth IRA are not tax deductible, but earnings are never taxed provided your child meets the distribution requirements — chief among them waiting until at least 59 ½ before tapping the account.¹ While he or she probably cannot imagine ever being that old, there are other ways to put Roth IRA savings to good use prior to age 59 ½, such as the purchase of a first home.

Wealth Transfer with a Roth IRA
As effective a retirement planning tool as a Roth IRA can be, its greatest strength may be its potential as a wealth transfer instrument. Unlike traditional IRAs, minimum distributions are not required from Roth IRAs once the owner reaches age 70 ½. Therefore, a child theoretically could have held a Roth IRA his or her entire life never having tapped into it and then pass it on to his or her beneficiaries upon death. At this point the account would fall under the same minimum withdrawal rules that pertain to traditional IRAs. However, beneficiaries may choose to string out those withdrawals over many years, continuing to earn tax-free income on the remaining account balance.

The hidden value of the Roth IRA is its exceptional growth potential. If heirs decide to spend or withdraw Roth IRA assets immediately upon inheritance, the Roth's strategic value as a wealth transfer tool is lost. If however, they choose to let the Roth IRA continue to grow and only withdraw what is required by law each year, the true power of the Roth IRA can be realized.

¹Distributions from a Roth IRA may be tax free if you are at least 59 ½ years old and have owned the Roth IRA for at least five years; your withdrawal of up to $10,000 (lifetime limit) is applied to a first-time home purchase; or you die or become permanently disabled.

© 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 #623073

 

Would you like to apply strategies to optimize your Social Security Benefits?

Social Security decisions loom for many baby boomers. As Americans become healthier, and live longer, seniors have more options to consider when it comes to retirement.  If you are a Male age 65, then there is a 50% probability that you will live to age 85, and a 25% probability that you will live to age 92. For Females, the probability is 50% for age 88 and 25% for age 94. If you are a couple, then the probability that at least one will live to age 92 is 50%, and there is a 25% probability of at least one spouse living to age 97¹. Ten thousand baby boomers retire every day.

Changing demographics and family make-up has also made the Social Security decision more complicated. For example, what if you are divorced? Can you collect the benefits of your ex-Spouse? What about Multiple Marriages? Which benefit are you entitled to collect, and at what age? What if your spouse is deceased? What will happen if you re-marry; will you forfeit spousal benefits?

A Financial Advisor can assist you with planning for your retirement income needs and help to develop strategies to estimate how many years your money will last. Your trusted Advisor will also help you determine how much money you will need.

Consider these four costly mistakes that Retirees make about Social Security²

Mistake #1 – Underestimating the real value of Social Security – For years, Financial Planners have warned that Social Security will never provide enough income for us to live on. For many, this is true however Social Security is still a very important component of Retirement benefits.

Mistake #2 – Rushing to Collect, then regretting the reduced benefits for the rest of your life – There is a reduction to your benefits if you do not wait until you reach Full Retirement Age (FRA). You can also experience an increase, if you collect after FRA. Below is a table that illustrates the differences in payouts:                                     

Age	Benefit
62	25% Reduction in Benefits
63	20% Reduction in Benefits
64	13.3% Reduction in Benefits
65	6.7% Reduction in Benefits
66	FULL Benefits
67	8% Increase  in Benefits
68	16% Increase  in Benefits
69	24% Increase  in Benefits
70	32% Increase  in Benefits

Mistake #3 - Not understanding the various ways married couples can integrate their benefits – There are various types of benefits for which married spouses might be eligible, and how those benefits might interact with each other. There are Spousal benefits, a worker benefit or Survivor Benefits. If you were divorced, you have options depending on whether or not only one spouse worked, or both spouses worked. There are ways to optimize benefits by developing a claiming strategy. There are 81 different strategies you can use to maximize benefits. You can use a “File and suspend” strategy; a “File a Restricted Application” strategy; or a Combination of the two.  You can even file then pay back the money within a year to get to your maximum benefit. Everyone’s situation will be different. A Financial Advisor will help you determine the best strategy.

Mistake #4 – Getting Blindsided by the “Tax Torpedo” – Let’s face it, many seniors have retirement accounts in defined contribution plans (IRA’s, 401K’s, 403B’s, 405 Plans) that will have to be eventually taxed. The government requires withdrawals from these plans once retirees reach age 70 ½ so that your distribution can be taxed. When you combine the minimum Required Minimum Distribution (RMD) with the Social Security benefit, it may trigger higher taxation of Social Security benefits. There are also strategies to reduce the amount that you are taxed if you continue to work after starting social security. Fortunately, some mistakes can be avoided.

Contact Lifetime Financial Group for a Seminar schedule to learn more today.

Consider this:

(1)    40% of retirees spent more on uninsured healthcare cost than expected averaging $240,000.

(2)    70% of retirees over age 70 will need long term care

(3)    Retirement accounts account for 42% of wealth

How much time will you have to save up for retirement? How many years can you expect to live after retirement? Conventional wisdom says that you will need as much as 70% to 80% of your pre-retirement income, adjusted each year for inflation, to continue your current life style.

Other Factors that will determine how well you will manage your retirement savings include:

(1)    The total Amount of Contributions that you will make over time

(2)    Your method of saving. (All at once or little by little?)

(3)    What type of Investment you will use in Retirement i.e. Savings Accounts, Stocks, Bonds, etc.

(4)    The Inflation Rate over the Life of your Retirement Planning

(5)    How Long will you have before you spend down your Retirement Savings

(6)    Whether or Not you Re-Invest the Growth of your Investment?

(7)    How much will your savings or investments grow, less expenses

(8)    How and when Money will be taxed and by how much

Join the Lifetime Financial Group for a Seminar to learn more about your Social Security Benefits. Click here to sign up.

© Carmen Coleman, President and CEO

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

Rochester, NY 14614

(585)325-2525 

Email: lifetimefinancial@ssnrep.com