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Make sure you have a will and revisit it often

3 min read
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Everyone needs to have an estate plan to deal with their belongings after their demise. Some assets such as personal property pass through a will. A recent study found 44 percent of baby boomers do not have a will. Many people who do have one have not kept it up to date. Maybe you named a guardian for your children and they are now grown. Perhaps an ex-spouse or deceased parents were named in your original will. Maybe you have new children or grandchildren who were not born when the will was written. A will is not one and done. It goes through probate after your death. It is a court procedure that takes time and may cost 3 to 4 percent in fees.

Not all of your assets go through a will. An insurance policy, IRAs, 401(k)s and anything that has a beneficiary designation avoids probate. Even if the will listed these same assets, the beneficiary designation controls the distribution.

Some of your assets are qualified and some may be nonqualified. One hundred thousand dollars of non-qualified assets are worth more than $100,000 that is qualified. This is because Uncle Sam wants his cut of qualified money. You got to reduce your income by the amount you deposited in this account, so you must pay tax on all of the withdrawals that you make.

There are different rules about leaving qualified money to a spouse as opposed to someone else. Anyone but a spouse must begin taking required minimum distributions based on their age even if they are not 70 1/2. A grandchild who is 20 will have a very low percentage of required minimum distributions. Inherited IRAs must be properly titled. It would be something like this: John Doe (deceased 10-2-2010) IRA FBO Mary Doe. This example is the only choice for nonspousal beneficiaries. A spouse is the only one who can roll over someone else’s IRA into their own.

It should not be automatic to roll over your spouse’s IRA, since it could be a major mistake under some circumstances. If the surviving spouse rolled the money over into their own IRA, they would incur a 10 percent penalty if they were under age 59 1/2. They could avoid this if they kept the money as an inherited IRA. They would have to pay taxes, but no penalty. Once they reached 59 1/2, they could then do a spousal rollover into their own IRA.

When the funds are rolled over, it is an irrevocable decision. It cannot be undone and put back. It is as though the money was always in the survivor’s account.

Once the survivor reaches 59 1/2, he or she can then make the rollover.

While most beneficiaries must start taking required minimum distribution by Dec. 31 of the year after the IRA owner dies, this does not apply to the spouse, who does not have to start taking required minimum distributions from the account until the year the deceased would have turned 70 1/2. Often spouses are fairly close in age, so the survivor would reach 59 1/2. Exercise the option that will reduce your taxes to the lowest amount possible.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, contact business editor Michael Bradwell at mbradwell@observer-reporter.com.

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