These scarcely seem the days to focus on longterm financial management. Brokers are heard to quip, “I’m not even buying green bananas in this market.” Yet history shows that when America’s stocks have taken similar huge, sudden drops, they return to pre-plunge prices within 18 months. For those planning to live more than a year and a half, attorney and CPA Seymour Goldberg suggests some fiscal planning may be in order.
While individuals increasingly rely on some sort of professional aid in their retirement and estate planning, not every legal or tax advisors can be counted on to have full knowledge of the latest statutes. To help bring this vital information into the communities of CPAs and attorneys, the New Jersey Institute of Continuing Legal Education presents a panel discussion “Inherited IRAs: What You Need to Know,” on Wednesday, November 12, at 9 a.m. at the Double Tree Hotel at 4355 Route 1. Cost: $149. Visit www.njicle.com. Featuring Goldberg, founding partner of Jericho, New York-based Goldberg & Goldberg, the panel will provide professional advisors an advanced set of tools for aiding their clients.
Goldberg literally wrote the book — several of them, in fact — on retirement and estate planning. His latest “Can you Trust Your Trust?” follows such other fiscal guides including “How to Protect Your Savings from the IRS.” A true son of Brooklyn, Goldberg attended the City College of New York, earning his bachelor’s in business and an MBA in taxation. He then became an IRS investigator.
Early in the 1960s Goldberg earned his law degree at St. John’s. Founding the law firm of Goldberg & Goldberg, he brought his CPA and legal skills to focus on a retirement and estate distribution. As an adjunct professor, Goldberg teaches in these specialties at Long Island University.
“Right now, they’ve got me catching the bad guys,” he says. He goes after trustees who manhandle, mishandle, or pocket trust funds. “I even have caught some of my former students,” he smiles. “I have actually dredged up old attendance records to show they were in class and should know better than to act as they have.”
Money in an individual’s IRA account may be placed in a revocable trust, allowing children and grandchildren to become beneficiaries of these funds after the individual dies. Seems like a nice way to pass things on, and for many reasons, it is. Placing these IRA death benefits in a trust, rather than making them direct payments from the will, sidesteps probate court in cases of benefits to minors. Payments to beneficiaries may be accelerated, as the individual’s will provides. Multiple IRAs may be established to pay off grandchildren who will pay a lot less estate tax, than if that income came via the parent.
That’s just a few of the many strong benefits, but before you leap, Goldberg suggest considering a few caveats.
Pay on demand. When the holder of an IRA dies, the IRS sees no decent period of bereavement. Distributions as designated by the IRA trust must be made immediately following the holder’s death — even if he is two years from retirement. So must the taxes be paid within the year. Current statutes dictate no estate tax on estates valued at less than $2 million and 5 percent on estates valued at more than $2 million. By 2009 that 5 percent gets reduced to 3.5.
In regular IRAs the funds are protected from creditors in case of bankruptcy. However, Goldberg points out, this may not hold true in all cases. If the beneficiary is someone other than a spouse such protections might not apply. Setting your IRA into a trust does afford the owner and heirs bankruptcy protection, but it comes with a price. Administering certain types of IRA trusts typically runs between $2,000 and $5,000 each year.This hefty expense should be balanced against expected trust income and final benefits. Your IRA might end up funding your administrator’s son’s college tuition.
Equally, there is a problem with going it alone. “Tying your IRA to a trust without specialized aid is suicide,” states Goldberg. “The state laws concerning overpaying and timely paying of beneficiaries are very strict and through sheer ignorance, trustees may open themselves up to breach of trust lawsuits.” This translates into serious jail time.
One solution is to establish an IRA trust and prepay the taxes on it. “This gives you a solid legacy of untaxed cash to pass on — if, of course, you believe the markets will hold out and your investments will grow.”
What CPAs miss. Passing the bar or gaining CPA certification does not automatically imbue one with all the nuances of retirement and estate transactions. Those seeking to retain an attorney, CPA, or any financial advisor should conduct extensive interviews face to face with several candidates before taking any advice. Here, actual knowledge trumps degrees or even experience. It is, after all, your life’s savings.
“You’d be surprised at the number of lawyers and CPAs who have yet to realize that most standard beneficiary forms are bogus,” says Goldberg. He cites the fatal flaw of the Surviving Sibling Rule.
When one out of three beneficiary children dies, it is only natural that the recently deceased would want his money to go to his own heirs. That also would probably be the intent of the parent who originally bequeathed to him. Yet in most beneficiary forms a little legal mistake of intent takes place. Rather than going to the deceased’s heirs, his funds are automatically split among the surviving siblings. So sister Sally grows richer, while Junior gets robbed of his college fund. Insurance payments also typically play out according to this Surviving Sibling Rule.
Another overlooked subclause that has cost the taxpaying public untold millions is the estate tax deduction. Large estates face a double taxation on the same funds, first in the form of estate tax, then the annual income tax bill. To partially compensate for the government’s two bites at your apple, the IRS allows taxpayers to deduct the estate tax they have paid — prorated — on their 1040. However, if your accountant misses this deduction, don’t count on the IRS to remind him.
The personal touch. One seldom-considered problem Goldberg sees often is undue influence being exerted by a single beneficiary. “All of the sudden, in the parent’s last days a new nurse, or even a girlfriend appears on the scene and poof — the beneficiaries of this revocable trust get changed,” says Goldberg. “And it just might be one of the beneficiaries who arranged for this sudden appearance.”
In today’s households a major amount of the saved wealth often comes from the family IRAs, Keogh plans, and other retirement instruments. One would hope that IRA owners will not be spending out their last dollars right at their demise, so it is natural to employ these funds as part of their estate.
The course for such planning is legal, frugal, and very possible. It is also very tricky to get your cash past the tax man and the administrator into the hands of one’s intended beneficiaries. Thus once again, business becomes personal. You’ve got to find someone you trust to initiate your trust.