I previously wrote about the so-called "stretch" IRAs or, as some like to call them, "stretch and protection" IRAs.  Whatever the name, the importance of this type of IRA is that, upon your death, your children and/or other beneficiaries can take the money in your IRA over their lifetime rather than in a lump-sum.  This has the potential of greatly increasing the benefits to the beneficiaries because the tax deferral of investment earnings can continue during the lifetime of the beneficiaries and the overall income taxes can be substantially lowered.

Radon Stancil, CFP®, and Rick Parkes, LUTC® of Diversified Estate Services have written an article entitled, "Maximizing your money through stretched IRAs," which explains the benefits of a stretch IRA.  Because the article isn't too long, I'm reproducing it in its entirely right here:

"Since their introduction in 1974, Individual Retirement Accounts, or IRAs, have become a cornerstone of many investment portfolios, providing a road to financial security for millions of Americans. In setting up a will or trust, however, many people unknowingly miss the opportunity to maximize the value of their IRA or 401(k), which is often times the biggest asset left to heirs. As a result of this missed opportunity, most beneficiaries who inherit IRAs end up paying more taxes than what’s necessary.

The best way to maximize an IRA intended for an inheritance is to set up a 'stretch' by taking advantage of an important IRS tax code provision.

Before 2002, beneficiaries of an IRA, 401(k) or other type of retirement plan, had no other option than to receive their inheritance in a lump sum. This led to huge tax liabilities, especially in cases where these inherited IRAs were large.

For example, at that time if you had a household income of $100,000 per year and suddenly inherited an IRA of $200,000, your income tax rate would shoot up to the top tax bracket, and you would end up owing 40 percent of your annual income and inheritance to the government. The worst part was that there were very few options for getting out of this situation.

Fortunately, in 2002, a tax code provision came into effect allowing beneficiaries to defer taxes on the majority of inherited IRAs, making a huge difference in both immediate tax liabilities, as well as the lifetime value of the inherited account. In order to take advantage of this provision, investors in IRAs and their beneficiaries must correctly set up everything in a will or trust.

To effectively stretch an inherited IRA, you need to know a few things. Stretching IRAs can get complicated, and you’ll probably want to consult with a qualified estate planner or financial professional for more details, but here are the important points to keep in mind:

• The custodial document and beneficiary form must permit the IRA stretch    provision. • A non-spouse beneficiary cannot roll the account assets into his or her own account. • A living person must be named as the beneficiary of the IRA. • If multiple beneficiaries inherit the IRA and each wants to use their own life expectancy in setting up a stretch, the account must be split by December 31 of the year after the account owner’s death.

Unfortunately, many don’t know about the stretch provision and fail to use it. It doesn’t cost anything to set up a stretch, but, in order for it to work, not only must the account holder set up the stretch, but the beneficiary must also know how to implement it.

To make sure you don’t miss anything when setting up a stretch IRA or implementing a stretch, your best bet is to consult a professional, such as an estate planner or financial advisor who is experienced with IRAs and knowledgeable about the details regarding stretching the account."

Radon Stancil, CFP®, and Rick Parkes, LUTC® have 45 years of combined experience in the financial services industry and assist North Carolina residents with their comprehensive financial needs including IRA management, retirement income planning, investing, tax planning, risk reduction and estate planning. For more information please give them a call at (919) 787-8866 or visit their website at www.desllc.org. 

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Many people procrastinate when it comes to planning their estate.  But, if you have a child with special needs, the price of not making adequate plans for his or her continued support can be devastating - not for you necessarily, but for your special needs child.

NY1.com recently published an article by Tara Lynn Wagner that clearly sets forth the basic problem with planning for a special needs child; i.e., if you leave your special needs child any inheritance upon your death, that inheritance may end up with the state or result in the termination of public benefits.  But, that doesn't have to happen - and it won't happen if you take the time to do the proper planning.

If you have a special needs child, take a look at Tara Lynn Wagner's article entitled, "Special Rules Apply For Supporting People With Special Needs."  There's also a video accompanying the article.  Then take the next step and contact an attorney who is well versed in the laws governing special needs trusts.  You can start by talking with one of our participating attorneys.

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Someone asked me just last week if a no-contest clause could be included in a living trust.  We know that those clauses are often included in a last will and testament, and it makes sense that they should be included in a living trust as well.  Still, until a court of law actually addresses the issue, the best we can do is speculate one way or the other.

That being said, I was pleasantly surprised to find an article just the other day about a recent Virginia case that ruled in favor of a no-contest clause in a living trust.  The article was published in a blog by the Fortenberry Law Group, PLLC, with offices in Mississippi and Alabama, entitled "No-Contest Clause May be Included in a Revocable Living Trust."  If you have any interest or concern about someone contesting your living trust, it wouldn't hurt to take a look at this article.  It's through actual court cases, such as the one addressed in this article, that we learn how to do things correctly - or at least as best we can under the circumstances.

For your information, the case cited by the Fortenberry Law Group article is Keener v. Keener, 682 S.E.2d 545 (Va. 2009).

If you have any hands-on experience with no-contest clauses in a living trust, please post a comment below.

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In an article published by Lifestyle, Elderlawanswers.com explains that the House and Senate conferees will soon sit down to reconcile two very different budget bills that cut billions from the Medicaid program. The House bill, H.R. 4241, apparently contains provisions that will punish unwitting elders who have given their families modest gifts, and will force some middle-income elderly to sell their homes and spend down the proceeds.

For those who are concerned about needing skilled nursing care now or in the future, either for yourself, your spouse, or a parent, you can read the entire article at the Lifestyle website.

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[Editor's Note:  This article has been reprinted with the permission of the author, Shawn McCammon, Esq.  It originally appeared in the Contra Costa Times]

Here are a few of the top 10 estate planning mistakes we tend to see in the estate planning community.  These are mistakes I see people make unwittingly that can be avoided with proper estate planning techniques.

I recently read a report that suggested that only about 20 percent of the population has a formal estate plan. After reviewing the points below, please take a minute to consider whether it's time for you to create or update your estate plan.

1.  Dying intestate, without a will or trust - If you die without a will or some other form of estate planning, the state in which you reside and the IRS will simply make one for you.

Of course, they have no interest in avoiding or reducing estate taxes, minimizing estate administration costs or protecting your family and legacy. The distribution of your assets will just be turned over to the Probate Court. The probate process is needlessly time consuming, frustrating and expensive.

It is also open to the public, meaning creditors, predators or anyone else will have complete access to all information about your estate. For the vast majority of people, the benefits far outweigh any initial costs.

2.  Having an I love you will - An I love you will is one in which all the decedent's assets have been left to the spouse. On paper, it might seem to be a caring, thoughtful gesture, but the reality is quite different.

That's because such a will simply passes the complex issues and problems associated with transferring and protecting wealth onto the spouse or other loved ones.

An I love you will creates more problems than it solves, particularly for future generations.

3.  Giving property outright to your children - Here is another solution that might sound good at first, but ignores several important realities. For instance, what if the child in question is too immature to handle the responsibility of a large sum of money on his or her own? What if the child suffers a severe financial setback that puts the inheritance at risk to creditors?

What if the child marries a fortune-hunter, is addicted to drugs or alcohol, gets divorced or remarried? You may need to protect your children and heirs from their own poor decisions.

4.  Owning property jointly - There are two types of joint ownership, Joint Tenancy with Right of Survivorship (JTWROS) and Tenants in Common (TIC).

Problems with JTWROS include postponement of probate until last tenancy, loss of the double step-up in tax basis, and outright distribution.

With TIC, you also lose the double step-up in tax basis, and your property is subject to the estate plan of each tenant as well as probate for each tenant.

5.  Not having a trust - A trust is the single most effective estate planning tool available. There are many different types of trusts.

Among the better known and more commonly used are revocable trusts, irrevocable trusts and testamentary trusts. To protecting your privacy, a trust will help you leave what you want, to whom you want, in the way you want at the lowest possible cost.

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About the Author:

Shawn McCammon of Liberty Law, A.P.C., Red Bluff, California, is an estate planning attorney and can be reached at (530) 529-4329.

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Too often, we are guilty of too much emphasis on getting assets to the right people at the least possible cost when we plan our estates.  Yes, making sure that our assets are given to the right people when we die is an important part of estate planning.  Making sure that the cost of settling our estates is reduced as much as possible is equally important.  That's why estate planners spend so much time talking about avoiding intestacy, reducing estate taxes, avoiding probate, etc., etc.  But, there is another aspect of estate planning that is equally important.  In fact, it is one of the most important aspects of estate planning for many people.  That is, to maintain the harmony of our family upon our death.

The death of a family member is probably one of the most traumatic events in anyone's lifetime.  It creates an emotional upheaval among surviving family members that few have ever experienced.  And, it comes at a time when surviving family members are forced to handle funeral and burial arrangements; receive the condolences of distant relatives, friends and other acquaintances; and begin the process of settling the deceased family member's final affairs.  It comes as no surprise that this state of affairs almost always results in some tension among surviving family members, and there is always the potential for conflicts that could disrupt the family for years and may even result in protracted and expensive litigation.  

In my 30 years of practice, I've seen many families literally destroyed upon the death of a parent.  While I'm not a psychiatrist, it is clear to me that a surviving child looks for confirmation of the fact that he or she was loved by the deceased mother or father.  To a surviving child, the confirmation of that love is often much more important than any monetary gifts the surviving child may receive, and a surviving child will often seek confirmation of that love in many ways during the estate settlement process, including being acutely aware of whether one child is being favored over another.   Sibling rivalry rises to new heights during this period, and any child's perception that another child is being favored will often be manifested in disputes over the most trivial things.  And, those disputes will often lead to the destruction of family harmony for years and years and years.  In fact, many siblings have taken disputes over the settlement of a parent's estate to the grave.

So, how do you prevent family disputes from arising during the settlement of an estate?  First, you absolutely must take the time to prepare and implement a well-thought-out estate plan, one that is designed to get your property to your intended beneficiaries with the least amount of delay and the least amount of cost.  If you take the time to say who gets what and when, and if you take the time to arrange your affairs so as to reduce the cost of settling your estate, then you will have taken a major step toward reducing family disputes upon your death.

As stated above, however, the major reason for family disputes during the settlement of an estate is sibling rivalry; i.e., one child is made to feel slighted over another child.  Sometimes that feeling is real and sometimes that feeling is simply perceived by one or more of the children.  Whatever the reason, you can eliminate those feelings among your children by following what I call the "golden rule" of estate planning; i.e., never put family members at odds with each other over the settlement of an estate if at all possible.

When you put one child against another, disputes arise.  If you don't want your children to fight with each other, don't put them in a position where they are at odds with each other.  For example, in the course of planning your estate, you will be asked to name one or more executors of your estate.  You will also be asked to name one or more trustees of any trusts that might be created as part of your estate plan.  You may also be asked to name one or more individuals to serve as your agent under a power of attorney and/or health care proxy.  In many cases, your children will be the logical persons to fill those positions, either as the primary appointee or as the alternate appointee.  There may also be a temptation to name just one of your children to those positions, ostensibly because naming more than one often becomes too complicated or too costly.  However, experience shows that naming just one child to any of those positions will place that child at odds with all the other children.  It will result in a strained relationship between that child and the others, simply because the others will feel slighted.  As a result, a certain level of antagonism will prevail against that child, which often results in open warfare over seemingly unimportant decisions made by that child.

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