Estate Planning and Elder Law

O'Flaherty Heim Egan, Ltd.'s Trust and Estate Group consists of Gerard O'Flaherty and Jennifer N. Brown. Please contact either Gerard O'Flaherty or Jennifer N. Brown at their respective e-mail address if you would like to consult with them with respect to meeting your estate planning needs.

Estate Planning Checklist

As a service to our clients and perspective clients, click on the above attachment to retrieve an Estate Planning Checklist which should be of assistance to anyone interested in reviewing their estate plan and possibly updating with a new Will or Revocable Trust.

NEW DEVELOPMENTS IN IRA PLANNING

Recent developments in IRA planning are significant and should be considered by all persons with retirement plans.

For the balance of 2009 traditional IRA's have had a relaxation of the requirement of minimum distributions. This was motivated by the economic condition of the country and recognition of the fact that most persons retirement plans have suffered significantly with loss of value.

Congress also extended charitable IRA rollovers through the end of 2009. There is speculation that it will continue into 2010 but nothing has been finalized as of mid September, 2009. The payments must be made directly from an IRA to a charity. The taxpayer needs to be 70 ½ years of age and the amount permitted for the charitable IRA rollover is $100,000.00 or less.

There have been significant changes made that will significantly encourage almost any person with an IRA to consider a Roth IRA in 2010. Current regulations prior to 2010 limited Roth IRA conversions to persons having an adjusted gross income less than $100,000.00. A few changes have been made effective 2009 that have relaxed the more stringent requirements and one is that conversion is now permitted from a 401(k) plan to a Roth IRA.

For 2010 the $100,000.00 adjusted gross income limitation is dropped. The second important change is that in 2010 only, a taxpayer may elect to spread the tax liability over two years, that being 2011 and 2012.

With the vast majority of investors having lower IRA account values due to current market conditions, a conversion at present values can easily be anticipated to grow subsequent to the conversion and escape tax on the appreciation, if that does occur.

What factors should a person consider when deciding whether or not to make a Roth conversion:

1. Taxes, is it a fair assumption to assume that taxes will increase in the future. If so, convert because following conversion withdrawals are tax free.

2. Time. This factor means whether or not the taxpayer has sufficient time to "make up" the tax payment that would be required by future growth in the retirement plan account.

3. Estate size. Roth IRA's have a distinct advantage from an estate planning taxation point of view in that distributions from a Roth IRA are not considered an IRD asset. A traditional IRA is deemed IRD. IRD means "Income with Respect to a Decedent" and it is taxed in an unfavorable manner.

4. Who should consider doing a Roth conversion and obtain the greatest benefits?
   • Any person who has a sizeable IRA asset that they do not plan to use fully in retirement. The reason is that there is no required minimum distribution and the person's heirs receive a much greater value inheritance in the case of a Roth IRA than a traditional IRA.

   • Persons who want to leave tax-free money to their heirs should be especially motivated to consider the Roth conversion strategy.

   • Persons who are able to pay the taxes associated with the conversion from an outside source rather than from out of IRA funds will benefit the greatest by a conversion.

   • Persons with an estate that may be subject to federal estate taxes benefit by the conversion in that the taxes paid at the time of the Roth conversion reduce the overall tax effect of leaving a traditional IRA to one's heirs.

In summary, evaluation should be made by persons having a retirement plan whether or not to implement a Roth conversion because of the many new developments that allow for a spread of the tax impact and fewer limitations than ever in the past.

IRA Rules Simplified

By law, you must withdraw a minimum amount from your tax-deferred retirement savings every year once you reach age 70 ½. The requirement is intended to ensure that retirees eventually pay taxes on their tax-deferred retirement savings. But the old rules for calculating minimum distribution were complex and full of trap doors. Choosing the wrong beneficiary or calculation method could result in higher-than-expected mandatory withdrawals and big tax bills for your heirs. Worse, many decisions were irrevocable. The new rules scrap the old formulas in favor of a uniform method that will reduce required annual minimums for most retirees. Among the advantages:

1. A uniform lifetime distribution period, based upon the Minimum Distribution Incidental Benefit ("MDIB") divisor table, is used for almost all participants, regardless of whom the participant names as his or her beneficiary. The one exception to this much-simplified rule is where the participant names a spouse more than 10 years younger than the participant as sole beneficiary of the participant's IRA or retirement plan. Under these circumstances, lifetime distributions are based upon a joint and last survivor life expectancy.

2. Probably the most significant change made by the new Proposed Regulations relates to determining a designated beneficiary. Under the old rules, a designated beneficiary had to be determined by the participant's Required Beginning Date ("RBD").

   Under the new Proposed Regs., a beneficiary can be determined as late as December 31st of the year following the year of the participant's death. This dramatic change allows the participant to change his or her beneficiary at any time without it resulting in an increase in his or her minimum required distribution ("MRD").

3. Your beneficiaries can reduce their tax bills by stretching out inherited IRAs. Previously, children who inherited an IRA from their parents faced myriad withdrawal scenarios, most of them bad. In some cases, they were required to withdraw the money in five years. In others, they had to withdraw it all at once and pay taxes on the entire amount. Now, your heirs can take withdrawals based on their life expectancies.

4. But the simplified rules don't eliminate the need for estate planning. They don't, for example, shield inherited IRAs from federal estate taxes. If your estate's value, including your IRAs, exceeds the estate-tax exemption -- $675,000 in 2001 -- you need to talk to an estate planner about strategies to reduce your tax hit.

For assistance with you estate planning needs, contact a member of O' Flaherty, Heim, Egan, LTD's estate and trust department.