Retirement and Legacy Blueprint Webinar – Episode #10

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm to register or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

On this week’s webinar, attorney and advisor Chris Berry of answers questions regarding the steps to take when a beloved passes away, Final Expense Trust, Roth IRA, Secure Act, Tax Perspective, and Stimulus payments.


In this episode, you’ll learn…

  • Chris’ positive focus for the week
  • Steps to take when a beloved passes away
  • What are the other things that we need to think about in terms of making this as easy as possible for the kids or for the family when we have the legal structure?
  • Why we do not recommend joint ownership
  • Final expense trust
  • Liquid estate plan or liquid beneficiary plan
  • Does the 5-year rule apply to an inherited Roth IRA in 2018?
  • Can an inherited Roth IRA take out the RMDs only in the 10th year?
  • Can a single trust manage multiple Roth IRAs?
  • Why we have to do RMD on Roth in addition to the traditional IRA
  • RMDs from inherited Roth
  • What will I have to do differently from a tax perspective if I was furloughed, accepted unemployment, returned to work, then retired and accepted, and now have a monthly pension?
  • Stimulus payments
  • Secure Act

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Episode Transcript:

It’s great to see everyone. And I like to always start with a positive focus. And my positive focus is that we made it, one way or another, we’ve made it into another year. So I took some time off during the holidays and spent some time with family. And my positive focus is my family is safe and healthy and my kids are happy. They enjoyed sledding with the snow that we had. So it was a good time. And so just give me a second as I kind of finish up some of the technology things, because we also stream this over on Facebook.

And if you do have questions, again, feel free to put them in the question and answer section. I do have quite a few questions already submitted. One second. All right. Now we are going live. We have a good number of people in here today. So great to see everyone. Certainly appreciate it. I know there’s some other news and stuff going on today, so I have a little bit of competition for attention. But we’re going to cover some good stuff here.

So now, in case you don’t know, my name’s Chris Berry, of course, with Castle Wealth Group. And we do these Weekly Wisdom Webinars each week, where people either ask questions live, ask clarifications in the question and answer section. And I answer those. Quite a few people submit questions ahead of time. So I make sure to cover those as well. But if something comes up or it’s not clear, feel free to go ahead and put it into the question and answer section. And with that, I’m going to go ahead and share my screen. Just give me a moment. And we’ll get into the questions and answers. And I’ll go over here and we should be share.

But yeah, it’s a interesting day from a news and political standpoint, but we won’t get into that too much because we don’t know what’s necessarily going to happen with everything. So again, this is our Weekly Wisdom Webinars, where I answer your questions live. If you have something that needs more personal attention, feel free to use this link. You can just plug it into your web browser and it takes you directly to my calendar. Schedule a short little phone call. Or feel free to follow up with me afterwards. So we’re going to get into the questions. And the first question is, “We have our legal plans, wills, trust, et cetera. What can we do to make it as easy as possible for my family? I.e., what will they need to do in terms of burial or cremation?”

And so this was a question that was submitted ahead of time. And what they’re saying is they have their legal structure all set. They have their will and the trust and powers of attorney. So they have all of that in place. But the question is, “Hey, now that we have that legal structure, what are the other things that we need to think about in terms of making this as easy as possible for the kids or for family?” And it was kind of a longer email and I kind of summarized it here. But really, when we’re thinking about what happens when someone passes away, we do have a checklist. So if you just email me,, we can email you that survivor checklist. But basically, from a legal standpoint, there’s not a lot that has to happen right away because it’s all waiting on death certificates.

And so really, the first step is securing either burial or cremation. And so one of the things that can be done is setting that up ahead of time. And that’s where one of the things that some families like to do is cover their final expenses ahead of time. And what I’m talking about here is that when someone passes away, even if you have a trust and you name beneficiaries, there’s a delay before they can get access to those funds, because they need to wait on things like a death certificate.

One of the things I would not recommend is joint ownership. Don’t add kids like joint to any accounts, typically. There’s almost always a better way to handle things. So joint ownership is great for a married couple, but I wouldn’t recommend naming kids joint on your bank accounts, et cetera. But one of the big question is how do we cover like funeral costs? How do we make it as easy as possible on the kids? And that’s where what’s called a final expense trust. It’s not like a separate estate planning document or anything like that. It’s just, you set aside some amount of money, say 10,000. That would cover final expenses. Or if you wanted to give immediate money to beneficiaries to be able to wrap up your affairs, maybe $20,000. And that can be paid out to a named beneficiary without a death certificate within 24 to 48 hours.

Some people call it like a liquid estate plan or liquid beneficiary plan. It’s a way that, right away, the kids and beneficiaries can pay for the funeral without having to worry about paying it out of their own account. So that’s probably one of the things that sometimes people kind of forget about as it relates to putting together their estate planning or final expenses. Really, the more that you can set up ahead of time, the easier you’re going to make it for the beneficiaries. And in our estate planning portfolios, in the back, we always have a section called Memorial Instructions. Where if you have prepaid a funeral, you can have that information there, or whatever those next steps that the beneficiaries or next in line have to take.

And then also, to make it easy on the kids, again, we’re big believers in education, and that’s why we do these weekly webinars, but there’s a couple of things that we offer. One is that survivor checklist, which is a simple document that we can send over if you request it. Feel free to give our office a call or email. The second thing that we do or offer is we can do what’s called a family meeting. I was talking to some clients actually today about this, where what we do, when we’re face-to-face it’s easier, but we can certainly do a phone call or a Zoom, but we have you as the client come in and you bring in kind of whoever is next in line or a couple of your family members. And we don’t go over like how much money you have, or your assets or anything like that.

But we kind of go through almost like a fire drill of God forbid something happened to you, here are the steps that would have to happen. And that something that happens could be incapacity, a knock on your head. And now we reference in the financial and medical power of attorney how child one would step up to make financial and medical decisions. Or if you pass away, we talk about the steps and we go over the trust and how it works. And how, if we’ve set it up in such a way that the kids receive it and it’s held in trust, how those separate share trusts work. Just kind of a fire drill to go over all the issues in a non-threatening manner, in a less stressful manner.

And then the third thing that we offer to make it as easy as possible on family is a successor trustee workshop. We were doing these face-to-face about twice a year. So this is where you come along with your family members, or you send your family members. And we have a whole hour and a half class on the role of a successor trustee. That is something that we’ve made virtual, if I’m not mistaken. I think we do have, or we have done a virtual webinar just on the role of a successor trustee. So these are some educational things that we offer to try to make that event as easy as possible on beneficiaries. So hopefully that was helpful.

The one thing you can do ahead of time is kind of think about cremation and burial. And that’s something, again, that we have in that estate planning binder. Or maybe set aside some money that is immediately paid out to the beneficiaries within 24 to 48 hours of your death, just to make things a little bit easier. I had a client that did that. Her daughter was in Alaska. And so yeah, a funeral might cost five to $10,000, but now the daughter has to take time off work, has to fly down from Alaska to Michigan. And so the client wanted to put more money than just covering the funeral. So it’s not just covering funeral expenses. It’s covering all those final expenses. So that’s the first one.

Rest of these questions, a lot of them are really tax-based. And I appreciate that because I think tax risk is one of the biggest risks right now and also the biggest opportunities. And I’m not sure how long this opportunity will last, based on everything that’s going on in the political world right now because of the Tax Cut and Jobs Act. So the second question. “I inherit a Roth IRA that was created in 2018. Does the five-year rule apply?” So we’ve talked about this a little bit, but with a Roth IRA, there’s two ways to contribute to a Roth IRA. Let me see… “Does a survivor call police to collect the body?” Yes. What I would do is contact, if God forbid someone passes away, you would call 911. That was a question that came in.

So the second question. “I inherit a Roth IRA. It was created in 2008. Does the five-year rule apply?” The answer is yes. So there’s two ways to contribute to a Roth IRA. And it’s important to understand the distinctions. One is contribution. So you open up a Roth account. You’re working and you can contribute 6,000 or $7,000 a year to that Roth. Or we have what’s called a conversion, where you take money from that pre-tax account, that IRA, and then you move it over into the Roth, but you have to pay taxes. There is no cap on the conversions. You can convert as much as you want. The only issue is you have to pay the tax on that conversion.

Now, there’s a five-year rule for each one of these, and the five-year rule works differently for each one. And this can be a little bit confusing. But when you open up a Roth account, that’s when the five-year rule starts. And this five-year rule is talking about the idea that you leave the money in the Roth for at least five years before you pull any of it out. Otherwise, you’d have to pay taxes on the gains. So the five-year rule for a contribution starts when you first open up that Roth IRA.

Now, the five-year rule for the conversion happens when you do the conversion. And so you could have multiple five-year rules if you’re doing multiple Roth conversions. And typically, it’s kind of splitting hairs to a certain extent, because really in terms of overall planning with where taxes are going, the Roth account probably should be the last account you would want to draw money from. You would want to draw money from the tax-deferred account or the taxable account, typically. So the question is, okay, let’s say someone put money into a Roth, either a contribution or a conversion. It was created in 2018. It’s an inherited IRA. So someone opened up a Roth, if I’m understanding the question correctly. They opened up a Roth. Then they passed away and left it to you. So does the five-year clock restart? Does the five-year clock get knocked out entirely? Or do we still have to honor the original five-year clock?

And the answer to this is yes, the five-year rule does apply and it would go back to 2018 when it was originally opened. So even if someone passes away and you inherit that Roth IRA, you still have their original five-year rule to worry about in terms of pulling money out. So yes, Roth IRA, the five-year rule applies even to inherited IRAs. So that’s number two. And again, if you do have questions or something’s unclear, feel free to type it into the chat or the question and answer section, and I’ll try to clarify that.

Number three. “Can an inherited Roth IRA take out the RMDs only in the 10th year?” So let’s kind of dive into this a little bit. So what happened at the beginning of last year is we had what’s called the SECURE Act. And we’re doing live workshops on this. And it seems like a lifetime ago of when we were talking about this at the beginning of 2020. So much happens. But really, the big thing with the SECURE Act is it affects any inherited IRAs, whether Roth or traditional.

Prior to the SECURE Act, you could do what’s called a stretch IRA, where you could stretch out the required minimum distributions over the lifetime of the beneficiary. So prior to the SECURE Act, when you turned 70 and a half, you still are taking out money from it and pay the tax. Well, the SECURE Act pushed that back to age 72. And then prior to the SECURE Act, when you inherit an IRA, you don’t have to pay all the tax at once. You could stretch out the required minimum distributions over your lifetime. And so that was an interesting planning strategy, especially when we left money to younger individuals, where their RMD might be less than the growth on that account. So you’re almost creating like a pension or annuity for younger individuals with these stretch IRAs. And we did a lot of trusts to maximize that.

But now with the SECURE Act, they’ve killed off the stretch IRA, where now we can only stretch it up to 10 years. So we can still do what’s called a 10-year stretch. So if you inherit a pre-tax IRA, you have to pay all the taxes within 10 years. Now, the interesting thing is, is you don’t have to pay all the taxes evenly. So if we have like your one, two, three, four, five, six, seven, eight, nine, 10, with a traditional IRA, you have to pay the tax. But you could pay all the tax in year 10. So you could allow it to continue to grow and then pay all the tax in year 10, if you wanted to.

Now, the question that was submitted is what about a Roth IRA? Now, a Roth IRA, you’ve already paid the tax and it grows tax-free. But the interesting thing is, is you still have to take the money out of the Roth. And so you can do that however you want over that 10-year window. So if you want to take out a little in the beginning, a little here, and then the rest in year 10, you could do it. If you want to do some in year nine and some in year 10, you could do it. But whether you’re inheriting a traditional IRA or a Roth IRA, if you inherit it, you’re going to have to take it out of that account within 10 years. If it’s a traditional IRA, you’re going to have to pay the tax on it within 10 years. If it’s a Roth IRA where the tax was already done, you have to take it out of the Roth. You just have to put it somewhere else, not inside of a Roth. They just want you to take it out of the Roth within the 10-year period.

So yeah, in a inherited Roth IRA, take RMDs out only in the 10th year. The answer is yes. And keep in mind, if it’s a Roth, there’s no taxes. You just have to take the money out and do something else, invest it somewhere else. And that’s why, with the SECURE Act, with everything going on in the world, a lot of our clients are looking at moving money from these pre-tax accounts to something else, like a Roth. Not only for their retirement, but also what we’re leaving to the next generation.

And these were two questions kind of submitted at the same time. “Can a single trust manage multiple Roth IRAs?” The answer to this is yes. But typically, what we would do is, let’s say we have a married couple, and we’ll say a husband and wife, and the wife’s wearing a dress. That’s the only way I can differentiate boys and girls in my drawings. And they have a trust. Typically, what we do is, if they were to pass away and let’s say they had three kids, we would have that one trust kind of split into three separate shares. One share for each child. And now each child would then manage their own separate share trust that sprung from the original trust.

So while you’re alive and well, we would fund the assets into the trust. And then upon death, this trust ends once we’ve wrapped up your final expenses. And then each child would have their own separate trust. So it’d be like the Smith Trust for the benefit of John, the Smith Trust for the benefit of Jane, the Smith Trust for the benefit of Jim. And Roth could be inside of those. So that’s how I would handle that.

Now here’s the question. “Are you saying that you have to do RMD on Roth in addition to the traditional IRA?” Yes. So this is after you pass away. While you’re alive, if it’s your Roth, you don’t have to do any type of RMDs. But when you pass away and it becomes an inherited IRA, now within 10 years they have to take all the money out of the Roth account. No taxes are due. They just have to take the money out of the Roth and do something else with it.

“What about the RMDs from the inherited Roth?” Oh, and also, “What about the RMDs from the inherited Roth?” So the RMDs from the inherited Roth, those are not taxed. You just have to take the money out within 10 years. So kind of saying required minimum distribution. Technically it’s accurate, but it’s not like you have to pay taxes on it. The required minimum distribution on an inherited Roth is that it has to come out by year 10. And the difference between a traditional and Roth is just that there’s no tax, even though you’re required to take out that distribution. So hopefully that answers the question.

Here’s a question on stimulus payments. I’ll get to that one. Number five. We’ll talk about that. “I took money out of my traditional IRA this year, due to the CARES Act, with the three years to pay the taxes on it. How do I handle that with that, if and when I receive the 1099.” I’d have to, mechanically, in terms of how it’s handled, I’d have to ask our CPA on that one. But I know that we have a three-year time window to do that. It’s something that I even took advantage of, just because I know that also you could do it without penalty if you’re younger than 59 and a half. So with where taxes are going in the future, it makes a lot of sense. But I think, even if you probably will still get a 1099, it’s just how do you choose on allocating that on the actual tax return. And that’s where our CPA does the actual tax returns. I don’t do the actual tax returns. So if you want more information on that one, just reach out to me and we’ll get it figured out.

And then this is getting back to the RMDs. Keep all the money for 10 years or RMDs in their first nine years and the remainder in the 10th. So again, this is getting back to the question of the Roth. Keep all the money in for 10 years, or RMDs are in first nine years, and the remainder in the 10th. So with the SECURE Act, you can handle the inherited IRA, whether it’s Roth or traditional, however you want. You can take it out evenly each year, or you can take it all out in a lump sum at the end. So you don’t have like RMDs the way you do while you’re alive. That’s what’s changed with the SECURE Act. So think of it as when you inherit a traditional or a Roth IRA, you just have to take it out within 10 years when you inherit it. Take it out of the account. If it’s traditional, you pay the tax. If it’s Roth, it’s tax-free.

And then number six, this one’s kind of a tough question to answer. “What will I have to do different from a tax perspective if I was furloughed, accepted unemployment, returned to work, then retired and accept, and now have a monthly pension?” You’re going to have a more complicated tax form, because you’re going to have a lot of different inputs. In terms of what should you be doing different or what would be different, I guess the big thing is you’re going from working, or working somewhat, to now retired. And depending on where your income is, what may happen is your income may drop.

And if you have a lot of pre-tax money, that might be opportune times if you think taxes are going up, which a lot of people think they will be in the future, maybe you draw on that money. And even if you don’t need it, maybe invest it in something that grows tax-free, like a Roth. But other than that, it’s just going to be a more complicated tax season for you because you have all these different things going on. I probably didn’t answer that great, but that would be more of a reach out and we can talk more in detail.

Now, here’s another question that came in and this is with regards to… So the question is, with stimulus payments, stimulus payments first based on 2019…. Does a second payout follow the same rules with upside [inaudible 00:23:45]. So the question… I apologize… The question is, looking at these different stimulus packages, so we had the CARES Act that happened in March. And then we just had our Coronavirus Relief Act, which was like 5,000 pages. And we’re sending money overseas, and then all under the heading of Coronavirus Relief. What are the differences? So both of these are based… Well, this happened actually in 2020. So both of these are based off of your 2019 tax return. The latest one, to be honest, I’m not an expert on this one yet, just because we’ve had so much going on. But my understanding of these is both of them are going to be on your last year’s tax return. You have to have filed taxes or have a social security number to receive the payments.

The first one, neither of them have to be paid back. Neither of them will count as income for you. The first one had income thresholds, if I remember correctly, and I don’t have the numbers right in front of me of. I think for a married couple, if I’m not mistaken, the first one had an income limit of 150,000, where if your 2019 tax return showed more income than 150,000, you wouldn’t receive a benefit. My recollection of the Coronavirus Relief Act was we have that same 150, but now, if I’m not mistaken, there was a phaseout where, basically, every couple dollars over from 150 to 187, it would lower your benefit of that $600. And it was $600 per person. And then also, if you have dependents who are 17 or younger, you could get additional payments on that. But yeah, we’re not done with everything going on with the stimulus packages. And I think we’re going to see more of this in 2020. I don’t know. Even with all the news going on, it’s hard to predict what’s next in terms of where these are going.

So that’s all of the questions. Here’s a question I missed. If, for IRA RMD, if turning 72 in October of 2021, when does the RMD need to start? Before birthday or before December 31st? For a IRA RMD of turning October… turning in. It’s going to be, I think, the following year. But the thing with the latest Act, the CARES Act, is we actually don’t have any RMDs this year. So they’re on your traditional IRAs. On inherited IRAs, you still have to worry about that.

So that was, I think, all the questions that were submitted ahead of time. And I think I answered all of the questions submitted live. If there are any… Let me just go here, questions and answers. If you do have any questions, feel free to put it in the question and answer. Otherwise… Here’s one. “Do RMDs from an inherited and traditional IRAs and Roth count as income for Medicare?” So again, with Roth IRAs, when you inherit those, the RMD is not income. It’s not taxed again. So you don’t have to worry about that. On the traditional IRAs, if you do inherit an IRA, it is going to affect your Medicare premium. So your Medicare premium may go up if you are taking your RMDs out of those traditional IRAs. And that’s something to keep into account when we’re doing things like Roth conversions. The year that you do that conversion, you’re going to see, basically two years in the future, your Medicare premiums will go up just for the year that you’re doing that conversion. And then they’ll drop back down.

And a lot of times, when we’re looking at it, the amount of money you’re saving from a tax perspective far outweighs paying any additional Medicare premiums. But it’s something that we always go over and we can run a qualified tax report that shows, if we were to do this conversion, where’s that going to put you in terms of your Medicare premiums. Let me… Just double-checking that I covered all the questions.

So if there isn’t any more questions, I want to thank everyone for attending. Again, we’re going to do these every week. I love when people submit questions ahead of time. If you do have questions live, feel free to always input those. If you know someone else that might find value from these, please just recommend, or have them register. And again, if you want to register, you already know this because you’re on, but if you find value in this, please share this with people. Just have them go to and they can register.

And then if you need something from me, or a clarification, or have questions, feel free to book some time on my calendar. We really miss doing our in-person workshops. We used to do them about once a week. Sometimes multiple times a week. So this is a way for me to scratch that educational itch that I have.

So with that, I want to thank everyone for attending. This is our first one of this year. We look forward to continuing it. Hope everyone had a great holiday. And I think we can all agree, let’s cross our fingers to make 2021, hopefully everything goes better in 2021.

Question just came in. “What is the URL for the recorded seminars?” Really, it’s just our YouTube page, which we’re trying to clean up a little bit, to organize it. But I’ll put it right here in the link. So here is our YouTube page. And what you can do is you can subscribe to it. And in addition to these webinars, we do short little educational videos. And so you might find a lot of value there. But yeah, feel free to subscribe to that YouTube channel. That’s where all of these previous ones are hosted, when I remember to record it, which I did today. And there’s a lot of other little educational snippets there. So another way to kind of stay in contact is through that YouTube page.

So thanks for asking that question. I appreciate. And Mikhail, thank you so much. It was great seeing you. Okay, with that, thank you, everyone. Make it a great week. I look forward to continuing this conversation next week. Take care. Bye-bye. 

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