Hesch Law Cincinnati

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  • IRAs and The Retirement Beneficiary Trust

    Baby Boomers: Protect your Biggest Asset From Creditors and the IRS!

    IRAs and the Retirement Beneficiary Trust

    I often find that the single largest asset my baby boomer clients have is in the form of an IRA or 401(k).  When that’s the case, I always counsel my clients about the importance of properly listing the beneficiaries on those accounts so that their estate plan operates the way they want it to. Typically, baby boomers name their spouse as the sole beneficiary of their retirement accounts. When the account owner dies, the surviving spouse has favorable tax laws and a lot of flexibility to decide what happens to their inherited IRA, including rolling it into their own.  However, what does a single or widowed person do with their IRA when they die?

    Non-Spouse Inherited IRAs: A Lesson in Asset Protection

    When your children (or any other non-spouse beneficiaries) are listed as beneficiaries of your retirement account and they inherit it outright, you might be exposing your account to your children’s creditors.  The US Supreme Court recently held that creditors can attach their claims to any non-spouse inherited IRA.  For example, when the beneficiary of an IRA is not the surviving spouse, the Federal Bankruptcy Act does not protect the IRA during bankruptcy if it is in the form of an inherited IRA.  Furthermore, when a child beneficiary goes through a divorce, the divorcing spouse may be able to attach a right to your child’s inherited IRA.  In addition, a person your child injured in a car accident may also be able to attach a right to the inherited IRA.  If you are concerned about exposing your retirement accounts to your children’s creditors, divorcing spouse, or in bankruptcy, it may be in your best interests to name a Retirement Beneficiary Trust as the beneficiary of your largest asset instead of your children individually.

    What is a Retirement Beneficiary Trust?

    Also known as a Standalone IRA Trust or an IRA Inheritance Trust, a Retirement Beneficiary Trust is an estate planning tool that controls the distribution of your retirement accounts to your loved ones upon your death.  It provides a level of asset protection for your children that they otherwise cannot attain when inheriting your IRA outright.  An added benefit to the Retirement Beneficiary Trust is that the trust can mandate your children to “stretchout” their inherited IRA’s required minimum distributions (RMDs) rather than cash out the IRA completely.  The longer the IRA distributions can be stretched out over a child’s lifetime, the more wealth is transferred to the child over time.  If a child were to cash out the IRA or if they had to use an older beneficiary’s life expectancy, that child would be subject to larger income tax payments and would be given a greater opportunity to recklessly spend the money or poorly invest it.

    How does a Retirement Beneficiary Trust Work?  Conduit v. Accumulation Trusts

    To properly establish a Retirement Beneficiary Trust, four basic requirements must be met:

    1. The trust must be valid under state law;
    2. The trust must be irrevocable or become irrevocable upon the Grantor’s death;
    3. The beneficiaries must be identifiable from the trust agreement; and
    4. The plan administrator is provided documentation of the trust.

    The Retirement Beneficiary Trust will also be one of two types of trusts: a conduit trust or an accumulation trust.

    A conduit trust receives the RMDs from the IRA and then distributes those RMDs to the trust beneficiary.  This type of trust does not accumulate and hold excess IRA distributions in trust like an accumulation trust.  As a result, a conduit trust does not provide much asset protection for the trust beneficiary because a creditor can simply attach to the RMDs when they are distributed from the trust to the beneficiaries.  However, the advantage to having a conduit trust is that the beneficiaries are easily identifiable (requirement 3, above). The beneficiaries must be identifiable because the IRS uses this information to determine the RMDs for the inherited IRA using the oldest beneficiary’s life expectancy.  If an older beneficiary’s life expectancy is used, the stretchout will not be maximized to its fullest potential.  A conduit trust easily prevents this situation because it is not holding assets in trust and does not have unintended contingent beneficiaries.

    On the other hand, an accumulation trust allows IRA distributions to be accumulated in the trust and distributed to the beneficiaries under the terms of the trust. This allows greater asset protection; however, under an accumulation trust, the IRS will consider the life expectancies of all remainder and contingent beneficiaries when determining the RMD amounts for the inherited IRA.  For example, if there is some unintentional contingent beneficiary who is 85-years-old, that person’s life expectancy will be used for income tax purposes and it will minimize the stretchout for the intended younger trust beneficiaries.  Accumulation trusts can be more complicated than conduit trusts because the drafting attorney must consider every contingency in the trust to prevent the IRS from identifying older contingent beneficiaries.

    Drafting Retirement Beneficiary Trusts, especially accumulation trusts, requires advanced tax law knowledge.  If you have concerns with asset protection and whether or not your children will maximize their stretch IRA, a Retirement Beneficiary Trust might be right for you.  Meet with your attorney, CPA, and financial advisor to learn more about Retirement Beneficiary Trusts.

    Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

     

    (Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

  • Top 3. Estate Planning Docs. Can Devastate-Pt. 4

    The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin – Money Can Be A Curse!!

    Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

    Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents.  What most people don’t realize is that the value of an estate plan isn’t just in the documents – it’s in the advice and counsel you get from your estate planning lawyer.  An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan.  Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities. Part I, Part II, and Part III of this series addressed the concerns you might have if the wrong heirs inherited your estate, concerns you might have with wasteful spending and worthless investments, and concerns with outliving your money.  This blog, which addresses the last part of Reason 1, will present an unfortunate, but all too common case study on how do-it-yourself documents can ruin your estate plan.

    Part IV.  Don’t get false peace of mind! A case study on how do-it-yourself documents can ruin your estate plan!

    Kim’s Financial Situation

    Kim is a resident of Ohio.  She is 72 years old, widowed, retired, and has two independent adult children.  Her estate consists of two main assets: a large retirement account and a $75,000 checking account.  When Kim set up her retirement account many years ago, she listed her husband as the beneficiary but never updated it when he passed away.  She also added her son as a joint owner on her checking account to help pay her bills.

    Kim’s Plan

    Like most people from Kim’s generation, Kim does not like talking about end of life planning with her children and thinks lawyers are a waste of money.  She decides to use a popular do-it-yourself legal website to set up her estate plan.  Kim recently heard a statistic that 80% of lottery winners go broke within 18 months.  She wants to limit the amount her two children inherit to annual payments over ten years to avoid wasteful spending and bad investments.  She also knows that she wants her children to inherit everything equally and she wants to avoid probate to save money and keep her finances private.

    Kim’s Online Documents

    Kim decides to implement a Trust in her estate plan because a Trust will satisfy all of those concerns.  Her Trust ultimately provides that her two children shall receive equal distributions of her Trust assets in annual installments for ten years.  The website also suggests that Kim needs to implement a Last Will and Testament.  She executes a Will and Trust which simply lists her two children as equal beneficiaries.  Kim feels confident that her “basic” website documents were done properly and can’t understand why anyone would spend the money to consult with a lawyer.  She puts her executed documents in a desk drawer and never thinks about them again.

    What Happened When Kim Died

    A few years later, Kim passes away.  Her deceased husband is still listed as the primary beneficiary of her retirement account and no contingent beneficiary is listed.  Her son is also still a joint owner on her checking account.  While cleaning out Kim’s house, her children discover Kim’s Will and Trust.  They consult with an estate planning attorney to find out how they need to proceed.  The attorney tells the two children that the Will and Trust are valid.  He further explains that any assets titled in the name of the Trust would have passed equally to the two children over ten years pursuant to the terms of the Trust.

    The attorney indicates that Kim’s Will governs all probate assets which are owned in Kim’s name individually.  Such assets will have to pass through probate and will be distributed to the two children outright, pursuant to the terms in the Will.

    After reviewing Kim’s assets, the attorney determines that the retirement account will pass to the children outright under the Will through probate because the account has no living designated beneficiary.  He also concludes that the checking account will not pass under Kim’s Will through probate at all, but will rather pass to the joint-owner child individually.  The attorney confirms that the Trust does not hold or will not hold any of her assets and it will not govern how her estate is to be administered.

    Kim’s Estate Plan Flaws

    In this example, Kim tried to accomplish her estate planning goals to make things easier for her family, but she ultimately failed to properly memorialize her wishes in several different ways:

    • She does not avoid probate. By failing to remove her deceased husband and failing to add her Trust as beneficiary of her retirement account, her estate becomes the beneficiary of the account, resulting in probate. When an estate is probated, it becomes public record.
    • Failing to review and update her retirement account beneficiaries resulted in her children inheriting her retirement account outright rather than in Trust over ten years. If Kim had named the Trust as the beneficiary of her retirement account (no probate) or named the Trust as the sole heir under her Will, her retirement account would have been owned by her Trust rather than by her children outright.
    • Her children will not inherit her estate equally. Kim added her son to her checking account for convenience purposes but failed to provide that the account would be payable on death to her children equally.  What seemed like a simple means of convenience for Kim ended up with a $37,500 inequality for her one child who inherited none of the checking account.
    • Kim wasted money using online documents. She tried to save money using online documents, but she ultimately paid for a Trust that was never used and her estate plan failed because none of her goals were accomplished.

    In conclusion, Kim got a false sense of peace of mind by preparing her own documents.  If she had met with an estate planning attorney, she would have received invaluable advice on how to avoid probate and make sure that her estate plan was set up properly.  Her attorney would have also identified the estate flaws detailed above.  Unfortunately, Kim’s example is all too common in the estate planning world.  What should have been a fairly simple estate plan turned out to be something completely different than what she wanted.

    Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

    (Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

  • Amy E. Pennekamp-Ohio Super Lawyers Rising Star 2016

    William E. Hesch Law Firm, LLC is pleased to announce that attorney Amy E. Pennekamp has been named a 2016 Ohio Super Lawyers® Rising Star.  Attorneys are chosen through the independent research of the publishers at Super Lawyers®, a Thomson Reuters business.

    Rising Stars are age 40 or younger or have been practicing law for 10 years or less, and represent the top up-and-coming attorneys in the state. Less than 2.5 percent of lawyers are selected for Rising Star status. Super Lawyers®, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a rigorous multi-phased process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area.

    Learn more about Amy and find her contact information, here.

  • IRS Changes in Tax Return Due Dates-Effective 2017

    Clients and Friends:

    Re: IRS changes in tax return filing due dates-To be effective in 2017

    Effective for returns for tax years beginning after December 31, 2015, the due date of partnership tax returns is changed to March 15th for calendar-year partnerships and to the fifteenth day of the third month after the end of the tax year for partnerships with a fiscal tax year.

    To avoid bunching the workload for filing and processing tax returns, the due date for C corporation tax returns is moved to April 15th for calendar-year C corporations and to the fifteenth day of the fourth month for fiscal-year C corporations.

    Because tax returns for tax years beginning after December 31, 2015, will be filed in 2017 and thereafter, the new due dates will affect returns filed beginning in 2017.

    The Due dates are not changed for tax returns for tax years ending 12/31/15 to be filed in 2016.

    —————————————-12/31/2015
    —————————————-Due Date
    Trust/Estates—Form1041——4/15/2016
    C Corporations—Form 1120—3/15/2016
    S Corporations—Form 1120S-3/15/2016
    Partnerships—Form 1065——4/15/2016

  • Amended Substitute House Bill 5 (HB 5)

    Dear Client and Friends:

    This year Municipal tax reform will take effect under the Amended Substitute House Bill 5. The Amended Substitute House Bill 5(HB 5) was signed into law on December 19, 2015. The new provisions take effect beginning on or after January 1, 2016. HB 5 provides some relief to the overly burdensome process for businesses in determining what local tax to pay and withhold from their employees when they do business in multiple municipalities.

    I have outlined just a few of the key provisions under the Municipal Tax Reform:
    (1) Mandatory 5 year Net Operating Loss carry forward. Requires all municipal corporations to allow businesses to deduct new net operating losses(NOL) and to allow a five-year carry forward of such losses first incurred in taxable years beginning on and after January 1, 2017, and permits pre-existing losses to continue to be carried forward if current ordinances allow.
    (2) Withholding provisions:
    a. The “occasional entrant rule” will increase the number of days from 12 to 20 days whereby a traveling employee may enter a municipality before their employer is required to withhold on wages earned.
    b. Employers will generally be required to begin withholding on the 21st day the employee conducts business within a municipality. There are limitations to the new law. If an employer expects the employee will work within a municipality more than 20 days, the employer will be required to begin withholding on day 1.
    c. A “small employer” withholding exception will be available for businesses with gross receipts of less than $500,000. These businesses will not be subject to the 20 day rule and will only be required to withhold income tax for their principle work municipality (fixed location). Employee’s not subject to the local tax at the business’s fixed location can apply for a refund, but the employer still needs to withhold tax on their fixed location.

    Listed above are just a few of the tax changes taking effect on January 1, 2016. If you would like a copy of the summary of the Amended Substitute House Bill 5, please give us call. The new law only gives taxpayers a short time to educate and prepare themselves for numerous changes in the municipal tax law. We will be working with our clients throughout the coming weeks to help them implement these changes. If you have any questions or have concerns about the effect of the changes on your business, please call us at (513) 731-6612.

  • Top 3-Estate Planning Docs. Can Devastate-Pt. 3

    The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin – Money Can Be A Curse!!

    Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

    Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents.  What most people don’t realize is that the value of an estate plan isn’t just in the documents – it’s in the advice and counsel you get from your estate planning lawyer.  An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan.  Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities. Part I and Part II of this series addressed the concerns you might have if the wrong heirs inherited your estate, as well as with concerns you might have with wasteful spending and worthless investments.  This blog addresses how online documents miss planning opportunities for unforeseen circumstances in your life, such as nursing home care.

    Part III.  Does your Estate Plan Address Unforeseen Circumstances? Don’t outlive your money!

    If you’re a baby boomer, Social Security suggests that you will likely live between ages 83 and 90.  If you do live that long, you should be concerned that you might outlive your money.  The number one fear of baby boomers is outliving their money during retirement due to unforeseen circumstances.  Such unforeseen circumstances include rising medical costs and the costs of long-term care.  If you ultimately need nursing home care, be prepared to deplete your hard-earned assets before Medicaid will help pay for your care. If you are married and you need to enter the nursing home, the most you and your spouse can keep is between approximately $23,000 and $120,000 (excluding your home) depending on the size of your estate before you will qualify for Medicaid.  That figure drops to $1,500 if you’re single.  Medicaid also only lets you keep $50/month from your monthly income.  Do you think you can live comfortably off of $50 a month?

    Unfortunately there is no crystal ball to predict if you or your spouse will need nursing home care.  All you can do is plan for the worst and expect the best.  Depending on your age, health, and wealth, it might be appropriate to consider advanced planning for Medicaid.  A good estate planning attorney can assess your situation and determine if Medicaid planning is appropriate for you.  Most people incorrectly assume that their assets are protected from Medicaid and the nursing home when their assets are placed in a simple revocable trust.  Such revocable trusts are typically the ones that online document providers provide.  Although these types of trusts may be sufficient for some estate plans, it may not work for yours.  Online estate planning documents cannot provide you with a customized plan that will properly carry out your wishes as well as safeguard your assets from rising nursing home costs.

    In estate planning, one size does not fit all. Over the years, I have found that no two families are alike.  Each family has unique issues and online documents typically cannot address those issues.  If your issues are overlooked or ignored, your estate plan will probably not work the way you intended.  If you have concerns about outliving your money and unforeseen circumstances, an estate planning attorney can help you budget your retirement and mold your estate plan to fit your specific needs.

     

    Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

    (Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

  • Top 3-Estate Planning Docs. Can Devastate-Pt. 2

    The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin – Money Can Be A Curse!!

     

    Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

     

    Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents.  What most people don’t realize is that the value of an estate plan isn’t just in the documents – it’s in the advice and counsel you get from your estate planning lawyer.  An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan.  Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities.  My last blog, Part I of Reason 1, addressed the concerns you might have if the wrong heirs inherited your estate.  This blog will address how your beneficiaries’ wasteful spending and worthless investments can ruin your family.

     

    Part II.  Wasteful Spending and Worthless Investments Can Ruin Your Family – Money Can be a Curse!!!

     

    Are you worried about your family’s long-term financial well-being after you die?  Are you worried that your spouse and/or children are not fiscally responsible enough to manage a large sum of money when you die?  If not, you should be.  According to USA Today, about 70% of all lottery winners go broke, many within a few months of winning.  Much like lottery winners, heirs who receive an inheritance outright, big or small, are at risk of quickly going broke, mostly because of reckless spending and worthless investments.  Without a lawyer’s guidance, you might not be aware of the risks involved with leaving assets and money outright to your spouse and/or children.  Such risks can include: your spouse being preyed upon in his/her twilight years; a child or grandchild using their inheritance to feed a drug addiction; your child dropping out of college to travel the world; or your fiscally irresponsible spouse or child mismanaging their investments.

     

    To prevent your loved ones from recklessly spending their inheritance and investing in worthless investments, estate planning lawyers typically suggest that you utilize a simple revocable trust in your estate plan.  A revocable trust provides a lot of flexibility that provides liberally for you and your spouse while you are living.  It can also control what distributions are made after your death, who those distributions are made to, and when those distributions can be made.  If your trust is set up properly with a responsible trustee and successor trustees, you can also control who makes investment decisions for the trust assets.

     

    Online document providers provide very basic trusts for their customers.  However, online trusts typically do not include specific provisions that address your family’s unique situation.  Something that may seem like boilerplate to you in your online trust agreement might actually be an important provision that operates contrary to how you want your entire estate plan to work.  An estate planning attorney, on the other hand, is able to assess your family’s situation and suggest a strategy that will give you peace of mind.

     

    In estate planning, one size does not fit all. Over the years, I have found that no two families are alike.  Each family has unique issues and online documents typically cannot address those issues.  If your issues are overlooked or ignored, your estate plan will probably not work the way you intended.  If you have concerns about your family’s well-being after you become disabled or die, an estate planning attorney can help you identify your family’s relevant issues and mold your estate plan to fit your specific needs.

     

    Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

     

    (Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

  • Peace of Mind

    Submitted by: Chris Allen, President – The Business Spotlight, Inc. and Committee Member of Emerging 30

    The William E. Hesch Law Firm, headquartered in Cincinnati, OH, is owned and operated by Bill Hesch, Owner/CEO. His company, founded in 1993, focuses on providing great legal, tax & financial advice (licensed attorney, CPA & Personal Financial Specialist [PFS]) for business owners and high net worth individuals (Estate, Elder Law & Medicaid Planning). Website: www.heschlaw.com
    (more…)

  • Affordable Care Act Changes

    Under the Affordable Care Act, there are new reporting requirements for the employer to report the cost of coverage under an employer-sponsored group health plan. For years after 2011, employers generally are required to report the cost of health benefits provided on the Form W-2. All employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement.
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  • Top 5 Problems with your Estate Plan

    Top 5 problems that arise when you leave money to your family upon your death and the unexpected consequences that would cause you to roll over in your grave

    1. Heirs recklessly spend their inheritance: Failure to leave your estate to your heirs in a trust means that your family “wins the lottery” upon your death. Your spouse and/or children may recklessly spend their inheritance within months or years, which is what most lottery winners do. A trust can control what distributions are made to your surviving spouse and/or children after your death and also delay the distributions over a number of years.
    (more…)