The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Using Trusts to Maximize Charitable Giving While Minimizing Estate Taxes

If you're eager to pass along accumulated wealth to heirs in the most tax-efficient manner possible while also retaining the ability to support a charity either right away or at some point in the future, then a split-interest trust may be just the tool you need. Split-interest trusts are so named because their financial interest is split between two beneficiaries -- typically a charitable beneficiary and noncharitable beneficiary.

Two of the most popular types of split-interest trusts are charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). The two vehicles are related, yet fundamentally different. They essentially work in opposite fashions. A CLT pays income to a charitable beneficiary for a certain period of time, after which the remaining assets in the trust (the remainder interest) passes to a noncharitable beneficiary or beneficiaries, such as children or grandchildren, or even the donor. With a CRT, the assets placed in trust provide a stream of income to noncharitable beneficiaries for a period of time, after which the assets become the property of a charity. Income tax, capital gains tax, and estate and gift tax differ significantly between CLTs and CRTs. As a result, you should seek the advice of a qualified tax and trust professional before determining which strategy is better for your situation.

Charitable Lead Trusts

A CLT can be set up to pay either a fixed annuity or a unitrust amount to a charitable organization, which means that it can pay either a fixed dollar amount each year or a fixed percentage of the fair market value of the trust's assets. While there is no limit on the amount of time a CLT can remain in effect, it must be for either a predetermined number of years or until the death of the donor.

CLTs are often the tool of choice for individuals with assets that have a high potential for future appreciation. They may also be well suited for those with heirs who are minors or otherwise not ready to assume full control of significant assets. By creating and funding a CLT, a grantor can make final arrangement for the disposition of an estate, but defer the date at which beneficiaries actually receive and control the property. In the meantime, the charity of choice receives immediate and ongoing benefits. When the assets do eventually pass to the noncharitable beneficiaries, they are not subject to the federal estate tax.

Keep in mind, however, that the grantor is not able to claim an income tax deduction for making contributions to a CLT. In addition, the grantor may have to pay a federal gift tax on a portion of each contribution, albeit only on the value of the remainder interest earmarked for noncharitable beneficiaries.

Also remember that while a CLT allows assets to pass to heirs with no federal estate taxes, a CLT is not a tax-free entity. Any income the trust generates in excess of the amount paid to charity is still taxable. And the sale of appreciated assets held within the trust may trigger capital gains taxes.

Charitable Remainder Trusts

In the eyes of a charity, a CRT is the mirror image of a CLT. A CRT first pays income to noncharitable beneficiaries before permanently awarding ownership of its assets to the charity. But in the eyes of Uncle Sam and taxpayers, the most significant differences lie elsewhere.

First and foremost, a CRT is a tax-exempt entity. For this reason, CRTs can be extremely useful for individuals who want to sell appreciated assets, such as investors eager to liquidate highly appreciated, concentrated stock portfolios in order to reallocate the money within more diversified portfolios or to create income streams for themselves or beneficiaries.

In addition, a grantor can claim a tax deduction for his or her donation to a CRT, equal to the present value of the charitable remainder interest. And although a CRT's assets are ultimately distributed to the charity free of estate and gift taxes, the noncharitable beneficiaries of a CRT must pay income taxes on the income received from the trust.

As with CLTs, CRTs are classified according to their payment methods. A charitable remainder annuity trust pays a fixed dollar amount at least annually, whereas a charitable remainder unitrust pays a fixed percentage of the fair market value of the trusts assets. According to IRS guidelines, each type of CRT must pay no less than 5%, but no more than 50%, of its fair market value annually. A CRT may remain in effect for life or for a predetermined period of time, not to exceed 20 years.


Tax rules governing trusts are complex. You should seek the advice of a qualified tax and trust professional before determining which strategy is better for your situation.


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Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Tax Strategies for Retirees

Nothing in life is certain except death and taxes. —Benjamin Franklin

That saying still rings true roughly 300 years after the former statesman coined it. Yet, by formulating a tax-efficient investment and distribution strategy, retirees may keep more of their hard-earned assets for themselves and their heirs. Here are a few suggestions for effective money management during your later years.

Less Taxing Investments

Municipal bonds, or "munis" have long been appreciated by retirees seeking a haven from taxes and stock market volatility. In general, the interest paid on municipal bonds is exempt from federal taxes and sometimes state and local taxes as well (see table).1 The higher your tax bracket, the more you may benefit from investing in munis.

Also, consider investing in tax-managed mutual funds. Managers of these funds pursue tax efficiency by employing a number of strategies. For instance, they might limit the number of times they trade investments within a fund or sell securities at a loss to offset portfolio gains. Equity index funds may also be more tax-efficient than actively managed stock funds due to a potentially lower investment turnover rate.

It's also important to review which types of securities are held in taxable versus tax-deferred accounts. Why? Because the maximum federal tax rate on some dividend-producing investments and long-term capital gains is 20%.* In light of this, many financial experts recommend keeping real estate investment trusts (REITs), high-yield bonds, and high-turnover stock mutual funds in tax-deferred accounts. Low-turnover stock funds, municipal bonds, and growth or value stocks may be more appropriate for taxable accounts.

The Tax-Exempt Advantage: When Less May Yield More



Which Securities to Tap First?

Another major decision facing retirees is when to liquidate various types of assets. The advantage of holding on to tax-deferred investments is that they compound on a before-tax basis and therefore have greater earning potential than their taxable counterparts.

On the other hand, you'll need to consider that qualified withdrawals from tax-deferred investments are taxed at ordinary federal income tax rates of up to 39.6%, while distributions—in the form of capital gains or dividends—from investments in taxable accounts are taxed at a maximum 20%.* (Capital gains on investments held for less than a year are taxed at regular income tax rates.)

For this reason, it's beneficial to hold securities in taxable accounts long enough to qualify for the favorable long-term rate. And, when choosing between tapping capital gains versus dividends, long-term capital gains are more attractive from an estate planning perspective because you get a step-up in basis on appreciated assets at death.

It also makes sense to take a long view with regard to tapping tax-deferred accounts. Keep in mind, however, the deadline for taking annual required minimum distributions (RMDs).

The Ins and Outs of RMDs

The IRS mandates that you begin taking an annual RMD from traditional IRAs and employer-sponsored retirement plans after you reach age 70½. The premise behind the RMD rule is simple—the longer you are expected to live, the less the IRS requires you to withdraw (and pay taxes on) each year.

RMDs are now based on a uniform table, which takes into consideration the participant's and beneficiary's lifetimes, based on the participant's age. Failure to take the RMD can result in a tax penalty equal to 50% of the required amount. TIP: If you'll be pushed into a higher tax bracket at age 70½ due to the RMD rule, it may pay to begin taking withdrawals during your sixties.

Unlike traditional IRAs, Roth IRAs do not require you to begin taking distributions by age 70½.2 In fact, you're never required to take distributions from your Roth IRA, and qualified withdrawals are tax free.2 For this reason, you may wish to liquidate investments in a Roth IRA after you've exhausted other sources of income. Be aware, however, that your beneficiaries will be required to take RMDs after your death.

Estate Planning and Gifting

There are various ways to make the tax payments on your assets easier for heirs to handle. Careful selection of beneficiaries of your money accounts is one example. If you do not name a beneficiary, your assets could end up in probate, and your beneficiaries could be taking distributions faster than they expected. In most cases, spousal beneficiaries are ideal, because they have several options that aren't available to other beneficiaries, including the marital deduction for the federal estate tax.

Also, consider transferring assets into an irrevocable trust if you're close to the threshold for owing estate taxes. In 2016, the federal estate tax applies to all estate assets over $5.45 million. Assets in an irrevocable trust are passed on free of estate taxes, saving heirs thousands of dollars. TIP: If you plan on moving assets from tax-deferred accounts, do so before you reach age 70½, when RMDs must begin.

Finally, if you have a taxable estate, you can give up to $14,000 per individual ($28,000 per married couple) each year to anyone tax free. Also, consider making gifts to children over age 14, as dividends may be taxed—or gains tapped—at much lower tax rates than those that apply to adults. TIP: Some people choose to transfer appreciated securities to custodial accounts (UTMAs and UGMAs) to help save for a grandchild's higher education expenses.

Strategies for making the most of your money and reducing taxes are complex. Your best recourse? Plan ahead and consider meeting with a competent tax advisor, an estate attorney, and a financial professional to help you sort through your options.


Source(s):

1.  Capital gains from municipal bonds are taxable and interest income may be subject to the alternative minimum tax.

2.  Withdrawals prior to age 59½ are generally subject to a 10% additional tax.
*Income from investment assets may be subject to an additional 3.8% Medicare tax, applicable to single-filer taxpayers with modified adjusted gross income of over $200,000, and $250,000 for joint filers.


Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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10 Worst States for Taxes on Your Retirement Nest Egg

Here is a nice article provided by Sandra Block of Kiplinger:


Retirees have special concerns when evaluating state tax policies. For instance, the mortgage might be paid off, but how bad are the property taxes—and how generous are the property-tax breaks for seniors? Are Social Security benefits taxed? What about other forms of retirement income—including IRAs and pensions? Does the state impose its own estate tax that might subtract from your legacy? The answers might just determine which side of the state border you’ll settle on in retirement.

These 10 states impose the highest taxes on retirees, according to Kiplinger’s exclusive 2016 analysis of state taxes. Three of them treat Social Security benefits just like Uncle Sam does—taxing as much as 85% of your benefits. Exemptions for other types of retirement income are limited or nonexistent. Property taxes are on the high side, too. And if that weren’t bad enough, some of these states are facing significant financial problems that could force them to raise taxes, cut services, or both.

10.  Utah:

State Income Tax: 5% flat tax

Average State and Local Sales Tax: 6.69%

Estate Tax/Inheritance Tax: No/No

The Beehive State joins our list of least tax-friendly states this year, replacing Rhode Island (which no longer taxes Social Security benefits for residents with adjusted gross income of as much as $80,000/individual, $100,000/joint).

Utah offers few tax breaks for retirees. Income from IRAs, 401(k)s, pensions and Social Security benefits is taxable at the 5% flat tax rate. The state does offer a retirement-income tax credit of as much as $450 per person ($900 for a married couple). The credit is phased out at 2.5 cents per dollar of modified adjusted gross income over $16,000 for married individuals filing separately, $25,000 for singles and $32,000 for married people filing jointly.

On the plus side, property taxes are modest. Median property tax on the state's median home value of $223,200 is $1,480, 11th-lowest in the U.S.

9.  New York:

State Income Tax: 4.0% (on taxable income as much as $8,450/individual, $17,050/joint) – 8.82% (on taxable income greater than $1,070,350/individual, $2,140,900/joint)

Average State and Local Sales Tax: 8.49%

Estate Tax/Inheritance Tax: Yes/No

New York doesn’t tax Social Security benefits or public pensions. It also excludes as much as $20,000 for private pensions, out-of-state government pensions, IRAs and distributions from employer-sponsored retirement plans. New York allows localities to impose an additional income tax; the average local levy is 2.11%, per the Tax Foundation.

The Empire State also has some of the highest property and sales tax rates in the U.S. Food and prescription and nonprescription drugs are exempt from state sales taxes, as are greens fees, health club memberships, and most arts and entertainment tickets.

The median property tax on the state's median home value of $279,100 is $4,703, the 10th-highest rate in the U.S.

While New York has an estate tax, a law that took effect in 2015 will make it less onerous. Estates exceeding $4,187,500 are subject to estate tax in fiscal year 2016–2017, with a top rate of 16%. The exemption will rise by $1,062,500 each April 1 until it reaches $5,250,000 in 2017. Starting Jan. 1, 2019, it will be indexed to the federal exemption. But if you’re close to the threshold, get a good estate lawyer, because New York has what’s known as a "cliff tax." If the value of your estate is more than 105% of the current exemption, the entire estate will be subject to state estate tax.

8.  New Jersey:

State Income Tax: 1.4% (on as much as $20,000 of taxable income) – 8.97% (on taxable income greater than $500,000)

Average State and Local Sales Tax: 6.97%

Estate Tax/Inheritance Tax: Yes/Yes

The Garden State's tax policies create a thicket of thorns for some retirees.

Its property taxes are the highest in the U.S.The median property tax on the state's median home value of $313,200 is $7,452.

While Social Security benefits, military pensions and some retirement income is excluded from state taxes, your other retirement income could be taxed as high as 8.97%. And New Jersey allows localities to impose their own income tax; the average local levy is 0.5%, according to the Tax Foundation.

Residents 62 or older may exclude as much as $15,000 ($20,000 if married filing jointly) of retirement income, including pensions, annuities and IRA withdrawals, if their gross income is $100,000 or less. However, the exclusion doesn’t extend to distributions from 401(k) or other employer-sponsored retirement plans.

New Jersey is one of only a couple of states that impose an inheritance and an estate tax. (An estate tax is levied before the estate is distributed; an inheritance tax is paid by the beneficiaries.) In general, close relatives are excluded from the inheritance tax; others face tax rates ranging from 11% to 16% on inheritances of $500 or more. Estates valued at more than $675,000 are subject to estate taxes of up to 16%. Assets that go to a spouse or civil union partner are exempt.

Proposals to increase the state’s estate-tax threshold—the lowest in the U.S.—to levels that would ensnare fewer estates have been derailed by the state’s financial woes. George Mason University’s Mercatus Center ranks New Jersey 48th in its analysis of states’ fiscal health.

7.  Nebraska:

State Income Tax: 2.46% (on taxable income as much as $3,060/individual, $6,120/joint) – 6.84% (on taxable income greater than $29,590/individual, $59,180/joint)

Average State and Local Sales Tax: 6.87%

Estate Tax/Inheritance Tax: No/Yes

The Cornhusker State taxes Social Security benefits, but new rules that took effect in 2015 will exempt some of that income from state taxes. Residents can subtract Social Security income included in federal adjusted gross income if their adjusted gross income is $58,000 or less for married couples filing jointly or $43,000 for single residents.

Nebraska taxes most other retirement income, including retirement-plan withdrawals and public and private pensions. And the state’s top income-tax rate kicks in pretty quickly: It applies to taxable income above $29,590 for single filers and $59,180 for married couples filing jointly.

Food and prescription drugs are exempt from sales taxes. Local jurisdictions can add an additional 2% to the state rate.

The median property tax on the state's median home value of $133,800 is $2,474, the seventh-highest property-tax rate in the U.S.

Nebraska's inheritance tax is a local tax, ranging from 1% to 18%, administered by counties. Assets left to a spouse or charity are exempt.

6.  California:

State Income Tax: 1% (on taxable income as much as $7,850/individual, $15,700/joint) – 13.3% (on taxable income greater than $1 million/individual, $1,052,886/joint)

Average State and Local Sales Tax: 8.48%

Estate Tax/Inheritance Tax: No/No

California exempts Social Security benefits, but all other forms of retirement income are fully taxed. That’s significant, because residents of the Golden State pay the third-highest effective income tax rate in the U.S.

Early retirees who take withdrawals from their retirement plans before age 59½ pay a 2.5% state penalty on top of the 10% penalty imposed by the IRS.

At 7.5%, state sales taxes are the highest in the country, and local taxes can push the combined rate as high as 10%.

The median property tax on the state's median home value of $412,700 is $3,160.

5.  Montana:

State Income Tax: 1% (on as much as $2,900 of taxable income) – 6.9% (on taxable income greater than $17,400)

Average State and Local Sales Tax: None

Estate Tax/Inheritance Tax: No/No

You won’t pay sales tax to shop in the Treasure State, but that may be small comfort when you get your state tax bill.

Montana taxes most forms of retirement income, including Social Security benefits, and its 6.9% top rate kicks in once your taxable income exceeds a modest $17,400.

Montana allows a pension- and annuity-income exemption of as much as $3,980 per person if federal adjusted gross income is $35,180 ($37,170 if filing a joint return) or less. If both spouses are receiving retirement income, each spouse can take up to the maximum exemption if the couple falls under the income threshold. Montana also permits filers to deduct some of their federal income tax.

The median property tax on the state's median home value of $196,800 is $1,653, below average for the U.S.

4.  Oregon:

State Income Tax: 5% (on taxable income as much as $3,350/individual, $6,700/joint) – 9.9% (on taxable income greater than $125,000/individual, $250,000/joint)

Average State and Local Sales Tax: None

Estate Tax/Inheritance Tax: Yes/No

...
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When Planning, Focus More on Goals Less on Numbers

Financial planning is a complex, lifelong process that people tend to approach with a numbers orientation. What rate of return do I need to reach my goal? How much insurance do I need? Can I afford a bigger house? How much money do I need to save for retirement?

To support their pursuit of the "right numbers," people often use separate advisors -- for instance, a banker, a financial planner, an insurance agent, a tax professional, and an estate planning attorney -- to oversee the various components of their household wealth. But can too many cooks spoil the broth?

This "siloed" approach to financial planning can easily lead to redundant investment strategies that could create exposure to unnecessary levels of risk. It may also result in multiple, random investment accounts in need of consolidation. Furthermore, such an approach may inadvertently overlook crucial tools, leaving entire planning areas to chance.

Unlocking Financial Synergies

When viewing their financial goals -- such as buying a home, paying for a child's education, or saving for retirement -- individuals typically think in terms of what those goals cost rather than how achieving them might affect their lives. If, however, they were to re-engineer the planning process and assess their current life issues and future aspirations prior to selecting investments and asset allocation strategies, they may be in a better position to achieve satisfactory outcomes. Perhaps equally important, by putting life circumstances at the center of financial decision-making, individuals may find more meaning in their actions with regard to money.

Indeed, values have a significant role to play in determining how individuals manage their assets. This is one way in which a holistic approach to "financial life planning" enables individuals to better assess their wants and needs, establish meaningful priorities, and avoid misguided investments. And, as life circumstances and priorities change -- as they inevitably will -- so too do financial goals. In this way, individuals employing a holistic approach to planning can easily identify and address those areas of their financial lives that are still working well and those that may be hindering their financial well-being.

Crafting a Plan

Crafting a plan that reflects your unique situation and that ties your life aspirations to your financial goals is part art, part science. To achieve this level of planning you need to rely on the guidance of a single skilled advisor -- someone who will take the time to get to know you and your circumstances and who will put together an appropriate combination of vehicles, strategies and, where appropriate, additional planning professionals to help achieve your goals -- whatever they may be.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Own a Retirement Account? Keep Your Beneficiary Designations Up to Date

Many investors have taken advantage of pretax contributions to their company's employer-sponsored retirement plan and/or make annual contributions to an IRA. If you participate in a qualified plan program you may be overlooking an important housekeeping issue: beneficiary designations.

An improper designation could make life difficult for your family in the event of your untimely death by putting assets out of reach of those you had hoped to provide for and possibly increasing their tax burdens. Further, if you have switched jobs, become a new parent, been divorced, or survived a spouse or even a child, your current beneficiary designations may need to be updated.

Consider the "What Ifs"

In the heat of divorce proceedings, for example, the task of revising one's beneficiary designations has been known to fall through the cracks. While (depending on the state of residence and other factors) a court decree that ends a marriage may potentially terminate the provisions of a will that would otherwise leave estate proceeds to a now-former spouse, it may not automatically revise that former spouse's beneficiary status on separate documents such as employer-sponsored retirement accounts and IRAs.

Many qualified retirement plan owners may not be aware that after their death, the primary beneficiary -- usually the surviving spouse -- may have the right to transfer part or all of the account assets into another tax-deferred account. Take the case of the retirement plan owner who has children from a previous marriage. If, after the owner's death, the surviving spouse moved those assets into his or her own IRA and named his or her biological children as beneficiaries, the original IRA owner's children could legally be shut out of any benefits.

Also keep in mind that the law requires that a spouse be the primary beneficiary of a 401(k) or a profit-sharing account unless he/she waives that right in writing. A waiver may make sense in a second marriage -- if a new spouse is already financially set or if children from a first marriage are more likely to need the money. Single people can name whomever they choose. And nonspouse beneficiaries are now eligible for a tax-free transfer to an IRA.

The IRS has also issued regulations that dramatically simplify the way certain distributions affect IRA owners and their beneficiaries. Consult your tax advisor on how these rule changes may affect your situation.

To Simplify, Consolidate

Elsewhere, in today's workplace, it is not uncommon to switch employers every few years. If you have changed jobs and left your assets in your former employers' plans, you may want to consider moving these assets into a rollover IRA or your current employer's plan, if allowed. Consolidating multiple retirement plans into a single tax-advantaged account can make it easier to track your investment performance and streamline your records, including beneficiary designations.

Review Your Current Situation

If you are currently contributing to an employer-sponsored retirement plan and/or an IRA contact your benefits administrator -- or, in the case of the IRA, the financial institution -- and request to review your current beneficiary designations. You may want to do this with the help of your tax advisor or estate planning professional to ensure that these documents are in synch with other aspects of your estate plan. Ask your estate planner/attorney about the proper use of such terms as "per stirpes" and "per capita" as well as about the proper use of trusts to achieve certain estate planning goals. Your planning professional can help you focus on many important issues, including percentage breakdowns, especially when minor children and those with special needs are involved.

Finally, be sure to keep copies of all your designation forms in a safe place and let family members know where they can be found.

This communication is not intended to be tax or legal advice and should not be treated as such. Each individual's situation is different. You should contact your tax or legal professional to discuss your personal situation.


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Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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