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Entries in retirement benefits (4)

Thursday
Apr202017

Accidental Disinheritance: Update Wills, Estate Plans Annually

Gift Tax, Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

So you have an estate plan? Good for you. You funded it? Even better. But have you updated it and your will in the last year? If you haven’t, your loved ones or favorite charities may be in for an unpleasant surprise. Your ex-spouses, step-children, ex-partners or someone else you hadn’t considered may find themselves receiving a windfall.

Designate Beneficiaries AnnuallyDon’t subject your loved ones to accidental disinheritance. This commonly happens when clients fail to update their beneficiary list, particularly upon:

  • Divorce
  • Remarriage
  • Death of a Beneficiary
  • Birth of a Child

Divorce is one of the more common events to cause rancor (and potential litigation) among surviving family members when a decedent hasn’t updated designations.

In Hillman v. Maretta for example, the Supreme Court of the United States decided Judy Maretta, the ex-wife of Warren Hillman, was entitled to Hillman’s nearly $125K life insurance policy proceeds. Hillman and Maretta were divorced for a decade before Hillman passed – but he never updated his policy beneficiary designee. His widow and ex-spouse battled in court for five years before the Supreme Court ultimately decided the case.

There’s more to this story however, as Hillman lived in Virginia which has laws to protect subsequent spouses (California Probate Code §6122, also protects subsequent spouses). Under state law, Hillman’s widow/current spouse would have received the proceeds.

But since Hillman was a federal employee, his life insurance policy was governed by the Employees’ Group Life Insurance Act of 1954. Under this Act, the beneficiary designation prevailed over Virginia regulations.

Similarly, consider Egelhoff v. Egelhoff. In this case, David Egelhoff named his wife Donna Rae as beneficiary of his pension plan and life insurance policy – both of which were governed by the Employment Retirement Income Security Act of 1974 (ERISA).

Shortly after their divorce, David died in a car accident. David’s children challenged Donna Rae’s status as beneficiary, citing Washington state law which would have revoked benefits for her upon divorce. The trial court found for the children, but an appellate decision found for the ex-spouse, and was upheld by the Supreme Court.

Laws in many states will revoke an ex-spouse’s claims. However, we see that federal laws will often trump state regulations. Even when no federal legislation applies, it just doesn’t make sense to make your preferred beneficiaries fight for their inheritances in court, should some question arise as to your intentions. Why put them through the expense and aggravation?

Beneficiary Designation Gone Bad

Here’s one more scenario that isn’t clouded by laws governing federal employees – in other words, this could happen to anyone:

We are currently dealing with a situation in which a wife was insured under two separate life insurance policies, and then passed away. Her husband was the designated beneficiary for both policies. Unfortunately, he became very ill just before his wife passed.

When she did pass, the husband was unable to manage his financial affairs, and never collected the life insurance proceeds due to him when his spouse died.

Death benefits from both life insurance policies are now going through probate (of the husband’s estate) before being distributed to the surviving children. If the parents’ living trust had been named as the beneficiary of the policies, the Trustee could have collected the life insurance benefits either when the husband was alive or after his death, without a Probate proceeding. 

Getting sound advice regarding how to complete beneficiary designations is AS IMPORTANT as completing them.

To be clear regarding your estate planning objectives, ensure these assets’ designations are all up to date:

  • Bank & Brokerage Accounts – Trust

  • Life Insurance Policies – Designate Trust or Tax Planning Life Insurance Trust

  • Trusts – check who you named as beneficiaries and who you appointed as trustees each year

  • Retirement Accounts – Beneficiary designation form

  • Company Benefit Plans - Beneficiary designation form

  • 529 College Accounts - Beneficiary designation form

  • Transfer on Death Accounts - Beneficiary designation form 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
May142014

Retirement Planning for Same-Sex Married Couples

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

In September, the Internal Revenue Service issued Revenue Ruling 2013-17 which clarified when, for federal tax purposes, the IRS will recognize same-sex marriages.

As of September 16, the Department of the Treasury and IRS recognized a same-sex marriage if the couple was married in a state where it is legal. It became the state of celebration that mattered to the feds, rather than the state of domicile.

Now the IRS has released further guidance, which addresses questions regarding certain retirement plans for same-sex married couples. Revenue Ruling 2014-19:

1. Describes when marital status is relevant to the payment of retirement benefits;

2. Outlines how tax requirements for same-sex married couples should be satisfied following the Supreme Court's decision in United States v. Windsor – in which Section 3 of the Defense of Marriage Act (marriage declared to be between one man and one woman) was deemed unconstitutional – and  Revenue Ruling 2013-17; and  

3. Provides guidance regarding when retirement plans should be amended for compliance.

 

Same-Sex Retirement Benefits: The Basics

Now is a good time to review your retirement plan, check your beneficiary designations, and check with your employer to see if the retirement plan will be amended to provide additional benefits to same-sex surviving spouses.

Keep these three things in mind:

1. Ruling 2014-19 is retroactive, applying the 2013-17 definitions of married couples for tax purposes to retirement plans. Remember, it's the state of celebration, rather than the state of residence that is important now.

So if a same-sex couple married in California and later moved to a state where gay marriage is not recognized – the surviving spouse will still be eligible to receive benefits according to the IRS. 

 

2. If a spouse passes away on or after June 26, 2013, the same-sex surviving spouse will be entitled to profit-sharing and stock bonus plans, and other potential benefits, if the spouse is named the primary or partial beneficiary.

If the deceased participant did not designate a beneficiary, the plan administrator must recognize the spouse (gay or straight) as the default beneficiary.

 

3. If someone other than the spouse is the designated beneficiary, the surviving spouse whether straight or gay, must have provided written consent to that effect.

If you need more information regarding who to designate as beneficiary for your estate's assets, please read Designated Beneficiary Assets: Consider Your Income, Capital Gains & Estate Taxes.

 

Kira S. Masteller is a Gift Tax and Estate Planning Attorney at our firm. Contact her by phone: 818.907.3244 or email: kmasteller@lewitthackman.com for more information.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Jul252013

How Does the DOMA Ruling Affect Estate Planning?

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

 

The United States Supreme Court's ruling on Section 3 of the Defense of Marriage Act (DOMA) on June 26, declaring the definition of marriage as a union between one man and one woman unconstitutional, means same-sex couples in several states can now take advantage of certain tax savings when estate planning. For federal tax purposes, homosexual married couples will now be treated the same as heterosexual married couples.

Granted, the IRS is still struggling to determine how they will deal with individual and joint tax returns for same-sex couples. But federal estate planning benefits may now apply to same-sex married couples in California:

  1. Company Retirement Plans: The Employee Retirement Income Security Act of 1974 gives spouses the right to be sole beneficiaries of certain accounts.

  2. IRA Rollover Rights: When a spouse inherits funds from an IRA or other qualified plan, s/he can roll those assets into her or his own IRA account to postpone the required minimum distributions.

  3. Annual Exclusion Gifts: Any individual taxpayer can gift up to $14K per year, to as many beneficiaries as needed, without triggering gift taxes. Together, spouses can gift up to $28K either from individual or joint accounts.

  4. Lifetime Gift Tax Exclusion: This one amounts to $5.25M for individuals, and $10.5M for married couples – significant savings for your estate.

  5. Portability: Speaking of the gift tax exclusion, portability allows the widow or widower to add the deceased spouse's unused exclusion to their own exclusion, totaling up to the limit of $10.5M.

  6. Other Tax Breaks: Using a marital deduction, spouses can make transfers to each other during life or at death.

Keep in mind that a same-sex spouse who moves to a state where gay marriage is not recognized, may not qualify for these benefits. The ruling in United States v. Windsor simply says the federal government will recognize a couple's marriage if the state where they reside recognizes the union.

Remember too, that the Prop 8 and DOMA rulings broke new ground in the legal landscape, and that for same sex couples in California and other states that recognize gay marriage, estate planning may be constantly changing for a while. Contact me if you need help keeping track of the current benefits and financial liabilities.

Kira S. Masteller is an Estate Planning Attorney and Shareholder at our firm. Email her at kmasteller@lewitthackman.com for more information.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Aug162012

Social Security Benefits | 10 Retirement FAQs

Trusts & Estate Planning

by Kira S. Masteller
818.907.3244

 

We've all heard about the financial difficulties engulfing our nation's Social Security program.

Decades ago, there were nearly five workers paying into Social Security for every one person receiving benefits. Today, there are nearly three workers paying into the program for every one beneficiary, and that ratio is steadily decreasing.

But according to the Associated Press, we have over two decades before Social Security beneficiaries will see a cut in benefits, and there's some (albeit slim,) hope that Congress  will overcome the deficit hurdles in that time. Whether or not a viable cure for the program's ills can be found, it still may be strategic for baby boomers retiring in the next few years to wait to file for benefits.

But how do you know what to do and when to file?

Here are 10 Frequently Asked Questions regarding your filing for Social Security, whether your household has one working spouse or two.

 

Retirement Planning: Social Security Retirement Ages & Benefits

 

1. Why do people defer their Social Security benefits to age 70 when they can receive checks at age 66?

Under the current program, deferring the payments increases the benefits by eight percent annually. 

 

2. Why take benefits at an earlier age?

Consider your health. Currently, men who are aged 65 today can expect to live to 83, while 65 year old women can expect to live to 85. These are merely averages. If you think you are in poor health, you may want to take your Social Security benefits now, rather than wait until you are 70. 

 

3. Is a spouse who never worked entitled to a spousal benefit at age 66?

Yes. Spouses without a work history are entitled to half of his or her working spouse's benefit, but can't collect until the working spouse elects to receive his or her own benefit. 

 

4. CAN A WORKING SPOUSE DEFER A BENEFIT TO AGE 70, BUT ENABLE THE NON-WORKING SPOUSE TO COLLECT A SPOUSAL BENEFIT AT AGE 66?

Yes. The working spouse may "elect and suspend" Social Security benefits, which allows that working spouse to wait for the higher benefit at age 70, and still allow the non-working spouse to collect benefits at age 66. 

 

5. What if the non-working spouse doesn't collect benefits at age 66?

The spousal benefit deferred won't mean bigger checks. But a non-working spouse who waits to file for benefits may file for retroactive benefits. 

 

6. If one working spouse who earned less defers the benefit to age 70, and the other working spouse earned more but opted to take benefits at age 66 – can the deferring spouse receive a spousal benefit?

Yes. The deferring spouse can take a full spousal benefit, or 50 percent of the benefit of the spouse who is receiving Social Security at age 66, which won't affect or diminish the deferred benefits. 

 

7. Will the working spouse who opted

for benefits at age 66 be entitled to a spousal benefit when the deferring spouse turns 70?

Yes, though that spouse should ask the Social Security Administration to determine whether or not taking the spousal benefit would be beneficial. 

 

8. What if both spouses earned high incomes throughout their work histories?

You can still use the "elect and suspend" option above. The spouse who took the spousal benefit gets four additional years of income, and their own higher benefit at age 70. 

 

9. If both working spouses plan to defer to age 70, can each spouse elect to receive spousal benefits?

No. A married couple may only receive one spousal benefit at a time. 

 

10. What if I was forced to retire, but didn't really want to?

The Social Security Administration will allow you to collect benefits for up to a year, and pay them back so that you can receive higher benefits later. You can only do this once though, so when you retire after the first time, make sure you are ready!

According to the Social Security Administration website, the first person to receive monthly retirement checks from Social Security paid into the program for three years. Ida May Fuller's accumulated taxes in that period totaled $24.75. Fuller's first retirement check totaled $22.54, but since she lived to be 100 years old, she collected over $22,000 in Social Security benefits in her lifetime.

None of us will get that large of a return on our Social Security taxes anymore. But with a little planning for the future we may still make the best of retirement.

 

Kira S. Masteller is an estate and gift tax planning attorney. E-mail her at kmasteller@lewitthackman.com. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
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