Having a plan in place for your beneficiaries is something many fail to consider. What if you are the beneficiary? Do you know how to be properly protected?
If your loved ones have invested, saved or insured themselves to any degree, you may be named as a beneficiary to one or more of their accounts, policies or assets in the event of their deaths. While we all hope “that day” never comes, we do need to know what to do financially if and when it does.
Legally, just who is a “beneficiary”? IRAs, annuities, life insurance policies and qualified retirement plans such as 401(k)s and 403(b)s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary, usually an individual named on a contractual document that is filled out when the account or policy is first created.
In addition to the primary beneficiary, the account or policy owner is asked to name a contingent (secondary) beneficiary. The contingent beneficiary will receive the asset if the primary beneficiary is deceased.
Some retirement accounts and policies may have multiple beneficiaries. Charities, schools and nonprofits are also occasionally named as beneficiaries. If you have individually listed one (or more) of your kids or grandkids as designated beneficiaries of your 401(k) or IRA, that designation should override a charitable bequest you have stated in a trust or will.
A will is NOT a beneficiary form. When it comes to 401(k)s and IRAs, beneficiary designations are commonly considered first and wills second. If you willed your IRA assets to your son in 2008 but named the man who is now your ex-husband as the beneficiary of your IRA back in 1996, those IRA assets are set up to transfer to your ex-husband in the event of your death. Sometimes beneficiary forms are revised; often they are never revised.
This is a guest post by Alban Smith. Interested in writing a guest post? Please email us at info at jayperoni dot com.
Estate Planning: Why is it important?
While most of us are trying to live our lives to the fullest, we don’t want to think about dying, or what will happen in the event of our death. However, the reason we are trying to get the most out of life is that we never know what is around the corner, and looking into your options for estate planning will mean you truly can kick back and enjoy life, because you know every eventuality is taken care of.
What Does Estate Planning Involve?
Estate planning is simply a means of ensuring that your estate is passed on to the people you want to have it when the right time comes, and in the most tax effective manner. Estate planning usually caters to the eventuality of your death, however, can also be useful if you are overseas, or you lose the ability to manage your own affairs due to illness or injury.
Your estate plan should be a part of your financial plans, but rather than just looking after your assets for yourself, your estate plan ensures that your assets are managed correctly during your lifetime, to preserve your wealth in a manner that allows it to be distributed according to your financial plan after you die. Your Will is the basis of your estate planning as the document allows you to choose who will benefit from your estate and what each person will receive.
How many CEOs leave that kind of legacy? How many get that kind of compliment (from President Obama, no less)? Steve Jobs’ death on October 5 drew myriad tributes to his sustained brilliance. It also led to questions keying on one of Jobs’ favorite topics: what comes next.
Will Apple continue to set the curve? As Forbes contributor Carmine Gallo noted, “I often get the question, ‘Can anyone innovate like Apple?’ The simple answer: While anyone can learn the principles that drive Apple’s innovation, few businesses have the courage to do so.” Jobs and Apple spread that courage and vision into a trifecta that few firms (and few of its rivals in the tech sector) could have hoped to achieve:
· Apple created its own orbit of revenue from a culture of raving fans. Instead of rigidly defining Apple as a computer manufacturer, Jobs saw Apple as a digital products company whose revenue streams could come from many forms of media: music, books, movies, and more.
· Apple sells much of its product from its own online and brick-and-mortar stores. It laps up retail gross profit and manufacturing gross profit.
· Apple has created its own iPhone/iPad apps, which generate yet more profit.
So with this trifecta in place, it is hard to imagine any firm dislodging Apple from the lead in the tech sector in the near future. Amazon’s Fire tablet has grabbed plenty of headline space as a low-end alternative to the iPad, and it may well be that Amazon claims the low-end tablet market for the near future while Apple gets the high end. (Of course, Apple owns the OS for its tablet; Amazon doesn’t.)
Does anyone possess the Jobs magic?
As Blast Radius senior creative director Jason Theodor remarked, Jobs dreamed up Apple products that were “beautiful, friendly, and often indistinguishable from magic … he never gave people what they wanted, but chose instead to give them what they never knew they needed.”
Apple has a capable CEO in Tim Cook and an innovative designer in Jonathan Ive, so there is every reason to think it will remain the pacesetter into the middle of the decade. If it can find another maverick like Jobs, it might hold its lead for longer.
In 2011, families and their financial, tax and legal consultants can at last plan estates with a degree of certainty. Thanks to the Tax Relief Act of 2010, we now have the lowest estate tax rate in 80 years, with some new rules to be aware of, and some very interesting choices and options affecting estate planning.
The federal estate tax is now 35% with a $5 million individual exemption. This is true for 2011 and 2012 – after 2012, estate tax rates could change.
The new $5 million exemption is portable. That is, executors have the option to transfer an unused $5 million individual estate tax exemption (upon the death of one spouse) to a surviving spouse. So with this new portability, a married couple could potentially transfer up to $10 million of assets without incurring federal estate tax.
In 2011, estates may be taxed under the new rules or the 2010 rules. That’s right, an executor has a choice. The executor can elect to:
·Subject the estate to the 2011 federal rules (35% estate tax, $5 million estate exemption, stepped-up basis for appreciated assets per IRC rule 1014)
·Subject the estate to the 2010 federal rules (0% estate tax and the $1.3 million modified carryover basis for appreciated assets in the estate, which becomes $3 million for assets passing to a surviving spouse).
Other factors
Estates worth more than $5 million will have to consider many factors to determine which choice will give them less of a tax burden. The federal gift tax exemption is set at $5 million through 2012. This is a fantastic tax break. Wealthy taxpayers can now plan to transfer significantly greater amounts of wealth within their lifetimes without triggering gift tax. This $5 million exemption is individual and portable, meaning that couples could potentially gift up to $10 million to heirs.
The annual gift tax exclusion is again $13,000 in 2011, so one taxpayer may gift up to $13,000 each to an unlimited number of individuals this year with the lifetime exclusion of $5 million in mind. (Those gifts can include tuition and payments for medical care.)
Charitable IRA donations are again permitted. This isn’t an estate tax law per se, but it factors into estate planning and it is certainly worth noting. Charitable IRA rollovers are back in 2011 (we don’t know yet if they will be around in 2012). There may be less financial incentive for families to make these rollovers given the much higher gift and estate tax exclusion this year, but others will act on their altruism.
The charitable IRA rollover allows an IRA owner age 70½ or older to gift up to a total of $100,000 in IRA assets to one or more qualified charities or non-profit organizations (a move that can count toward his or her annual RMD). It has to be a direct transfer – the gift must pass directly from an IRA sponsor to the charity. The IRA accountholder doesn’t get a tax deduction, but he or she can potentially bypass the income tax on the distribution.
Charitable IRA gifts made in January 2011 can count for 2010. The new law says that if you make a charitable IRA transfer in January 2011, you can elect to report the transfer on your 2010 federal return. Additionally, you are free to make another IRA charitable rollover of up to $100,000 at some other point in 2011 for the benefit of your 2011 federal return.
The GST is back. The generation-skipping transfer tax was 0% in 2010, but it returns at 35% in 2011. The GST exemption is set at $5 million for 2011 and it will be inflation-indexed for 2012.
In light of these interesting developments, it might be time to review your estate planning strategy.
People often ask me about coaching them on their business and in their personal finances. Here is how I look at a person’s financial life analyzing ten key areas.
Analyzing the Ten Key Areas of Your Faith-Based Financial Plan
1: Ownership.God Owns 100% of everything. This i the foundation of any plan determining who is the owner of all that is entrusted to you.
Key Verses:
Haggai 2:8 “The silver is mine and the gold is mine,” declares the Lord.
Psalm 24:1 “The earth is the Lord’s, and everything in it, the world and all who live in it.”
Key Coaching Areas:
• Assess attitudes & motives in your personal financial planning.
• Rather than, “How do I protect/use my money?” the question becomes, “How can I best look after/use God’s money?”
• To rely on God and his provision not on our wealth or our ability to create wealth.
You may think of life insurance in very simple terms: you buy a policy so that your loved ones will have some financial assistance when you die. But if you have assets of $1 million or more, you should view life insurance as a tool – kind of a Swiss army knife, in fact. Life insurance has many potential uses in estate planning, and a life insurance trust can certainly help a family.
What does a life insurance trust do? It enables you and your family to do three things in particular. One, it provides you, your spouse and your heirs with life insurance coverage after it is implemented. Two, it allows a trustee to distribute death benefits from a life insurance policy as that trustee sees fit. Three, it gives you the chance to reduce your estate taxes.
My good friend Bob over at ChristianPF.com is once again promoting the life changing 10 day give!
From Bob:
The 10 Day Give starts today! If you haven’t yet signed up and want in on it, you still can – sign up here. I am excited to get started and I just about have all the days planned out. If you need any ideas for giving you can read Craig’s list of some 101 ways to give as well.
Personally, I am really excited that so many people decided to join the 10 Day Give, given the tough economic times that we are in. I think that is all the more reason to do it! God’s economy works different than the world’s system and the Bible says that, “as we give, it will be given unto us...” (Luke 6:38). Not only do we get to bless and help those around us, but we have the promise that it will come back to us! The stock market is up and down, but giving into the lives of others is always a good investment that yields returns in this life and in Heaven!
Legally, just who is a “beneficiary”? IRAs, annuities, life insurance policies and qualified retirement plans such as 401(k)s and 403(b)s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary, usually an individual named on a contractual document that is filled out when the account or policy is first created.
