Making Smart Moves: Planning for Tomorrow to Reduce Worries Today

What can you do to prepare for most contingencies in your life and your children’s lives?

Suppose that you were headed towards a comfortable retirement, but wanted to provide something for your two children, one of whom happened to have autism. When the Orlandos first came to Grimaldi & Yeung they were particularly concerned about their younger child, a man in his early 20s. Although his autism was of the “high functioning” kind, he lived at home and relied on his parents for many things. In addition, their daughter had just gotten married and the Orlandos wanted to be sure that she had the freedom to raise her family. Although the Orlandos were in their 50s, they wanted to be prepared for any eventuality. We helped them:

Inventory their assets, including home, investments, retirement accounts, bank accounts and insurance policies.
Update their wills.
Issue Advanced Directives to ensure that their wishes for their own lives were carried out.
Set up a Special Needs Trust for their son.
Prepare a Letter of Intent documenting their son’s needs and preferences.
Develop a complete, flexible estate plan involving the whole family and the transfer of many of their assets into a revocable living trust.

The process of creating their family plan made the Orlandos an even closer family — and relieved a significant source of anxiety.

Trusts & Estates: IRAs

Retirement funds represent a valuable asset and thus are an important segment of a retired person's income picture. The attorneys of Grimaldi & Yeung are are uniquely qualified to assist you and your family in maximizing your retirement benefits.

Income Tax Issues

Retirement accounts such as IRAs, 401Ks and 403Bs are tax-deferred savings and are an important source of income. Funds deposited into retirement accounts are not subject to income tax until they are distributed. Taxes are paid at the time of distribution. It is generally best to defer income distributions as long as possible. Distributions can begin at age 59-1/2 without penalty, however, income tax will be due. If you are younger than 59-1/2, and want to take a distribution, you may do so without penalty in special circumstances, such as to pay medical expenses. This may be done only if certain requirements are met. As such, properly timed distribution can result in maximizing these assets and minimizing the tax.

Minimum distributions from retirement accounts are not required until April 15th of the year after a person turns 70-1/2. Generally, it is advisable to take only minimum distributions. However, in a year when substantial medical deductions will be taken, it may be advisable to take a larger distribution, as the deduction can offset the tax. Consult with a financial planner or with the attorneys at Grimaldi & Yeung before taking this step. We can offer sound counsel before you take large retirement fund distributions.

Designating a Beneficiary

Retirement funds provide for naming a beneficiary upon death. It is imperative that you regularly review the designation of beneficiary on each account and confirm that each financial institution has the correct designation of beneficiary form on file. Each account should designate both a primary and a contingent beneficiary. It is almost never advisable to designate the Estate as the beneficiary. This results in an accelerated income tax on the full amount in the retirement account.

Most married couples are advised to designate their spouse as primary beneficiary, as the spouse has the unique ability to roll over the IRA into his or her own IRA, and also to designate new beneficiaries. This gives the survivor (spouse) a second chance to postpone the income tax payment during the survivor"s lifetime. Only a spouse can roll an account over into his or her own IRA. In certain circumstances, a Trust can be a beneficiary of an IRA, but special drafting is required.

Medicaid Planning

Medicaid applies special rules to retirement accounts. The principal held in a retirement account can be exempt when the Medicaid recipient receives a regular income distribution. Our firm can help to protect these valuable retirement accounts by coordinating retirement and Medicaid planning.

In Medicaid planning, if the spouse is a retirement account beneficiary and also on Medicaid, Grimaldi & Yeung can determine an optimum alternate plan. Designating the children as the beneficiaries of the retirment accounts may be a better option. If the designated child is disabled, a Special Needs Trust, should be established for this beneficiary. Again, our firm has substantial expertise in the establishment of Special Needs Trusts and can balance the benefits and cost of each option.

Roth IRAs

Roth IRAs are an innovative retirement option which have certain tax advantages. They use income which has already been subject to income tax. Then, provided certain requirements are met, the funds grow tax-free and are not subject to additional income tax when withdrawn by the account holder. The restrictions vary according to law, but generally include:

A minimum time for the account to be open before withdrawals can be made.
A minimum age of the account holder before anything other than the principal can be withdrawn.
An income phase-out, which generally tends to allow those with lower adjusted gross incomes to contribute a higher percentage of their incomes to Roth IRAs.

Unlike traditional IRAs, there are no requirements that funds be withdrawn at a certain time. However, the apparent tax advantages may not be realized depending on how long you live, your income tax rate once you begin to withdraw funds and other factors. Seek the advice of a qualified advisor, CPA or your GY attorney to determine whether the Roth IRA is a retirement savings option appropriate for your estate plan.

An Essential Part of the Estate Planning Picture

In summary, IRAs have become a great source of family wealth and provide income stability during the later years. Decades of deferred income tax savings can allow retirees to build a savings nest egg. We welcome the opportunity to partner with you to make the most of your retirement savings.