Inherited IRAs are not protected from creditors

If you’re planning to leave an IRA or other retirement account to your heirs, you might want to consider creating a trust to hold the account. That’s the upshot of a recent ruling from the U.S. Supreme Court.

That’s because IRAs that are inherited from anyone other than a spouse are no longer protected from creditors in a bankruptcy. Heidi Heffron-Clark and her husband Brandon filed for bankruptcy after their pizza shop failed in 2009. They owed their landlord $74,000, but didn’t have enough cash on had to pay the debt. Continue reading “Inherited IRAs are not protected from creditors”

New Danger When Doing IRA Rollovers

IRS_logoThere’s now a big danger if you’re rolling money over from one IRA into another IRA, as a result of a decision from the US Tax Court. Under feferal law, you can only do one IRA-to-IRA rollover per year. If you try to roll over more than one IRA in a 365-day period, it’s considered a distributionm and you’ll be subject to significant taxes and penalties.

In the past, the IRS has told taxpayers that this means you can’t roll over the same IRA within a year. So if you rolled your Fidelity IRA over to Schwab, and you later wanted to roll the same IRA over to Vanguard, you had to wait at least 365 days.

But the Tax Court says this is wrong, and in fact you can’t roll over more than one IRA per year ….even if they’re different IRAs.

So if you had two IRAs at Fidelity, and you wanted to roll them both over to Schwab, you’d have to roll one over, and then wait a whole year to roll over the second one. There’s an easy solution to this problem: Instread of rolling the funds over (having them made payable to you and then depositing them at the second instituion), move them with a direct trustee-to-trustee transfer. As long as the funds move directly to the second institution, and you never touch them, it’s not considered a rollover.

But you have to be very careful and make sure that the formalities are followed and the first instituion doesn’t actually send you any money. Otherwise, it could be a tax nightmare.

Eight States are Easing Their Estate Taxes in 2015

estatetaxsmallEight states are reducing their estate tax burden in 2015, which is good news for anyone who lives or owns property in those states.

New York and Maryland are increasing their exemption amounts (the amount of assets an estate can have before any tax is due). For 2015, the New York limit goes from $1 million to just over $2 million, and the Maryland limit goes from $1 million to $1.5 million. Both states plan to gradually raise their limits to the amount of the federal limit by 2019. (The federal limit was $5.34 million in 2014 and will be $5.43 million in 2015.)

Tennessee’s limit will be $5 million in 2015, and the tax will be repealed altogether in 2016.

Rhode Island’s limit will go from about $1 million to $1.5 million next year, and Minnesota’s will rise to $1.4 million, increasing gradually to $2 million in 2018.

Also, starting next year, the exemption amounts in Rhode Island, Washington, Hawaii and Delaware will be indexed each year for inflation.


Some gifts to charity should be made now… not in your will.


In the past, many people’s wills included a sizable donation to charity. Because the federal estate tax was so burdensome, including charitable bequests in a will was a good idea since it reduced the amount of tax the estate had to pay.

Now, however, the federal estate tax applies only to estates of well over $5 million. As a result, for a great many people, leaving money to charity in a will no longer provides any tax benefit.

On the other had, the federal income and capital gains taxes have gone up, new surcharges have been added on investment income, and many states have raised their income and capital gains taxes as well. As a result, many pepple could reap signficant tax savings if they made planned annual gifts to charity while they’re alive, as opposed to making bequests in a will.

If you have an older will that includes a significant charitable bequest, this might be a good time to reconsider whether you could save taxes by writing the charity out of your will and instead making regular donations each year.


Points To Ponder In Picking An Executor

Thinking Smiling Woman With Questions Mark Above Head Looking UpOther than how you want to dispose of your assets, one of the most important things that you will have to decide in devising an estate plan is who your executor will be. The law requires that an executor {in some states called a personal representative) be appointed to handle an estate because someone must be responsible for collecting the estate’s assets; protecting the estate’s property; preparing the inventory of the property; paying valid claims against the estate (including taxes); representing the estate in claims against others; and distributing the assets to the beneficiaries.

Sounds like a lot of work, doesn’t it? And some of it can be complicated. However, the executor does not have to shoulder the entire burden. He or she can pay a professional out of the assets of the estate to take care of most of these functions, especially those requiring legal or financial expertise. Such an option will, of course, reduce the amount that goes to the beneficiaries. Therefore, handling an estate is often a matter of balancing expertise, convenience, cost, and other factors. There’s no consensus, even among lawyers, about who makes the best executor; it all depends upon your individual circumstances.

One approach is to appoint someone with no potential conflict of interest—that is, someone who does not benefit from the will. For this reason, many individuals avoid naming family members and business partners as their executors. This helps the estate to avoid claims by disgruntled relatives who may accuse the executor of dishonesty. Having a professional such as a lawyer handle the job can also save a spouse or other family member the hassle of dealing with estate issues while they are grieving, and the embarrassment of things such as collecting the debts that the estate is owed from friends and relatives. For a large estate, a paid professional executor is advisable.

For small estates, the fees of a paid professional executor may not be worth it. For estates under one million dollars, a spouse or a mature child is generally the best choice for an executor. However, be aware that choosing a child may create animosity among siblings.

If you decide to appoint an interested person as the sole executor and give that person discretionary power to decide who gets certain property, it makes sense to include the methodology by which those decisions should be made. The appointment of coexecutors may be another way to help deal with potential conflicts of interest.

So, what qualities should you look for in an executor? It’s important that the executor be capable of doing the job. Persistence in paying bills is a key trait of a good executor. Pick someone who has the time and inclination to deal with bureaucrats and forms.

The executor will probably have to hire a certified public accountant to deal with the final income tax return for income the deceased person accrued prior to death; the estate tax return; and the estate income tax return for income accrued after the person’s death.

The executor may have to hire an investment advisor if the estate includes stocks, particularly if the asset value has changed due to fluctuations in the market. However, no legal expertise is required to be an executor; the estate may hire a lawyer to help resolve legal issues.

Whoever you choose as executor, make sure your will provides for a backup in case the original executor is unable or unwilling to serve. If you do not, the court will assign one for you.