Castle Wealth Group

June 30, 2021

What Are The Necessary Estate Documents That You Would Need? |Weekly Wednesday Wisdom Webinars

Certified Elder Law Attorney and Financial Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm.

Want to join our live webinar? go to www.wisdomwebinar.com to register or give our office a call at 844-885-4200.

Want to book a 15-minute call with Chris Berry? Register at 15chris.com to book a schedule in his calendar.

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 www.castlewealthlegal.com answers the below questions.

• I have a Standalone Retirement Trust, with the Secure Act can I just do one Trust for all my assets?
• How can we reach our retirement goals(accumulation)?
• With all the talk of increasing taxes in corporations and wealthy individuals, I just read an article that put forth the need to overhaul the tax system and suggested a vat type of reform, how would that change all of the advice you have been suggesting?
• What Castle Wealth can do?
• What are the necessary estate documents that someone would need?
• Is there an income limit before you can start a Roth?
• Do you have to leave the Roth account alone for five years before you can use it?
• Is there a 3rd way to backdoor Roth IRA
• I manage our finances and accounts using quicken, we have several auto payments including monthly balances and credit cards. My wife has her own checking account but relies’s on me to alert her when the balance needs topping up. How do you suggest we help her manage your checking account and auto payments if I’m no longer around to help?
• Can tax on irrevocable trust be lowered by distributing earned income then the beneficiary pays less tax?
• Would trustees distribute earned income?

Visit our websites to learn more
https://michiganestateplanning.com/​​​​​
https://www.castlewealthlegal.com/home​​

Episode Transcript

Weekly Wednesday Wisdom Webinars April 28, 2021

Alright everyone we’ll go ahead and get started and if you can in the chat make sure that you can hear me don’t have any tech problems. Alright and if you do have any up all right you have a question coming in, alright coo,l alright so my name is Chris Berry if you haven’t been on one of these I do these Weekly Wisdom Workshops every Wednesday at one o’clock and then they’re recorded and uploaded into uploaded to Youtube so you can always watch at a later time. If you miss one and I do invite you to subscribe to our Youtube channel if you haven’t and depending on if you have notifications or not you can be notified when we have new information. And I always like to start with a positive focus the name of the Youtube channel is Castle Wealth group by the way I always like to start with a positive focus something positive that happens over the previous week, and my positive focus is that my kids want our first soccer game so I get to coach their soccer and I have my dad as my assistant coach and he was my coach when I was playing so it’s cool to get a win it’s actually my first win as their coach so that was pretty exciting. 

If you do have questions please make sure to submit them, I really only have two questions that are submitted ahead of time and then I saw another question just come in so we’ll get to that so hopefully you can see my screen. Yep, you can see my screen all right. So the first question that was submitted is and again this is general information if you want to see how it applies to you let’s set up a time to chat so the first question is, I have a standalone retirement plan trust with the Secure Act that just passed last year and I just do one trust for all of my assets. So a little history on this and again a lot of our conversations have to do with regards to taxes because that’s one of the biggest risks and biggest opportunities right now, so the concern was all right I have this large IRA or 401k. And for a lot of people, this was their largest asset maybe this or the house is the largest asset and so when we leave it to kids we don’t want them to spend it all the money right away or we don’t want them to have to pay all the tax right away. So in the past instead of leaving it to children, we would leave it to a special type of trust a retirement plan trust or standalone retirement plan trust but basically a specific trust set up specifically for retirement accounts because retirement accounts whether they’re IRA or rather they’re a Roth they’re what we call qualified accounts. 

There’s some type of tax qualification that goes with them and so initially we would do a separate trust for those qualified accounts if we didn’t want to leave it outright a big advantage, especially for traditional IRAs, is that we could do a stretch. We could do what’s called a stretch IRA and the IRA would be protected for the lifetime and it could stretch over a lifetime the taxes would have to be paid overtime but we could stretch the taxes over a lifetime well when the  Secure Act passed that killed really the stretch IRA, now all the taxes and anything if you are inheriting a qualified account all the taxes have to be paid in 10 years so that really defeated the purpose of the standalone retirement plan trust and now typically what we’re doing depending on the situation like if we have maybe it’s a second marriage or something like that typically we just have one trust where all of the assets no matter what they are going to go into one spot. So if you have 401k if you have Roth if you have non-qualified or just like just a brokerage account if you have real estate typically now we’re really looking at the trust kind of as a funnel where everything just funnels into this one trust, and then we distribute the assets however we want to our beneficiaries and we can still maintain the 10-year stretch and everything on those qualified accounts. 

So I’m a big fan of simplifying unless there’s a reason to complicate and so these days even if we want to stretch out to the full max of 10 we’re typically using just one trust where all the assets will go into that one trust there might be other reasons why we might do a different type of trust or multiple trusts but typically stretching out the IRAs for the next generation we’re past that point because of the  Secure Act that really killed off the stretch IRAs. So if we had a standalone retirement plan trust forcing the stretch now it’s kind of pointless to have that and so we’ll just have that one trust so so that’s the first one-second one and this was a general  it was a question that came in and I really I kind of changed it a little bit and a lot of times, I’m talking to people of as they’re close or in retirement and the world is different when you’re in there’s kind of two phases we have our accumulation phase versus I call it preservation/distribution and really it’s based on kind of life cycle like these are your when you’re in your 20s and your 30s and your 40s and this might be all right I’ve accumulated wealth now I want to protect it what do I do right and some of the concepts are the same and some are very different like when we’re during accumulation we’re willing to take on more risk in terms of how we invest things. And typically when we’re in preservation or distribution we’re typically a little bit more conservative in terms of how we invest our assets but I was actually interviewed today and this was one of the questions they asked interviewed for a news program and one of the questions they asked was, which what are the differences in terms of accumulation versus retirement so what should someone in their 20s or 30s or 40s be doing in this pandemic in terms of saving their money and the biggest thing is just saved as much as possible right it’s all about accumulation. 

And so a couple of things I laid out was, first of all, I always take the free money so if your employer offers a match always take that free money that’s money just sitting on the table. If you’re not taking the free money you’re really missing out second is to set up automatic saving right so as you have a paycheck coming in make sure with your bank or financial institution have them come as soon as that money comes into have them take a percentage and just put that into an investment account or savings account third don’t pay penalties and don’t make mistakes so if you do have a 401k maybe don’t take money out of it prior to 59 and a half because you might have a 10 penalty there’s some exceptions to that and then the first fourth thing and really this is I think really one of the most important and this gets over to the retirement side as well and again it’s getting back to taxes it’s thinking about where are you accumulating your wealth which tax bucket are you accumulating wealth in? 

So think about where your wealth is accumulating just even in this past week as I sat down with people who are now in their retirement phase they subscribe to the kind of traditional model of having all their money in those tax-deferred accounts right those tax-deferred accounts like the IRAs 401k client. I met with them right before I hopped on onto all of his money other than about a certain portion and checking savings. All of it was in a 401k at this point and then we have our tax-free buckets, which is the Roth cash value life insurance IUL or some people call this LIRP life insurance retirement plans 529 all savings accounts. So really this fourth one of okay let’s say you’re in your 20s 30s 40s still working 50s maybe still working you’re accumulating wealth okay always take the free money, maybe set up automatic savings plans don’t pay penalties but think about where you’re accumulating that wealth maybe we shouldn’t overfund that 401k right. I see a lot of people that put in more than just the employee match into that traditional 401k, if we’re saving money think about diversification maybe we should be lowering the amount that’s going into the traditional 401k and maybe look at putting money into a Roth or putting money into cash value life insurance or putting money somewhere else. 

So I’ve sat down with a lot of people even this last week that now they’re in retirement or about to retire and all of their money is sitting tax-deferred and now we need to figure out strategies to move money to Roth or IUL. A lot of times 529s or HSAS aren’t appropriate at this time but if you’re still working or you have children that are working in the workforce maybe have a conversation with them about where are they saving the money it’s very easy to just overfund that 401k over above the match but being intentional is going to set you up for a much more tax diverse retirement and that’s really at the end of the day what we’re trying to focus on is diversification and think about tax diversification. And while you’re accumulating wealth you can think about where are you accumulating the wealth if you’re already in retirement we can talk about strategies to move money from one bucket to the other. And there are different strategies that we can involve so those were the two questions I had prepared or submitted ahead of time another question comes in with all the talk of increasing taxes on corporations and wealthy individuals. 

I just read an article that put forth the need to overall the tax system and suggested a VAT type of reform how would all of this all how would that change all of the advice you have been suggesting well so the question’s really getting into what happens if they change the tax code. I had a longer conversation with client today and we talked about the tax cuts and jobs act and everything there  and we we had a in-depth conversation about where taxes might be going and he talked to his cpa and he’s working with a big wire house and they’re against Roth conversions right now even even in the tax bracket where because of even last year you didn’t have to take RMDs that that was an opportune time to do a lot of Roth conversion so like what if there are tax changes then we’re going to have to pivot and we’re going to have to pivot with with those changes and so one of the things I was going to talk about today just because I didn’t have a lot of questions coming in is that I was reading the wall street journal this morning and maybe we’re reading the same articles or looking at the same things today but even today biden and a chat question comes in one of one of the final outcomes of biden’s proposal recapital gains and step and base our terms should we decide on what tax and estate plan tweaking is needed yeah. 

So the laws are always changing and so I look at it in two ways one is what what are the tax laws now okay and then two where might they go okay because a lot of these things right now are just proposals and  like Bernie Sanders proposal with biden lowering the estate tax to three and a half million dollars to answer nakiel’s question and I appreciate the questions yeah we’re gonna have to change our estate plan because of that right now for estate taxes right now estate taxes are at 11 million dollars and they’re set to drop to 5 million that’s just part of the tax cuts and jobs act that is what we have right now okay where might it go and this is where we read the tea leaves I don’t I I I don’t know how to how to put that I don’t make decisions just based on a proposal right we kind of saw the  Secure Act was coming and if we go back to prior to 2020 we thought the  Secure Act was coming really I think since probably 2018 it was just a matter of when so we were very confident that that was going to happen it was just a matter of when so we’re already having conversations about okay well if we they do push back the RMD to 7.52 and now we can’t do stretch IRAs what are some of the strategies we’re very confident that that was going to happen some of these proposals are overhauling the whole tax system. I’m so busy spending time either working with my clients or looking at the proposals that are maybe on the five-yard line versus maybe the 50-yard line so we are forward-thinking in how we’re looking at things and that’s why we’re talking about things that Biden has proposed so one of the things that he’s proposed and might get traction is now that estate tax is dropping, to potentially 3.5 million dollars according to one of his latest proposals this is the Sanders-Biden proposal and the thing is is that there are certain things and this is really what it’s all about is taking advantage of the opportunities. 

Okay so this is why we’ve been talking and almost ad nauseam on a lot of these webinars is especially with taxes are a huge risk but there are windows of opportunity we know we have we know the tax cuts and jobs act runs from 2018 to 2025, unless Biden repeals it or president Biden repeals it sooner now could they extend it maybe they might go that way so the tax cuts and jobs act might be extended, but I don’t see that necessarily happening I don’t put a lot of faith in that so we are looking at both of these but I put a lot more weight on where the tax cuts or the tax laws are now, but I do keep an eye on where things are going in the future and I could easily see them lowering the estate taxes, in terms of overall tax reform. I don’t necessarily have any advice at this point on that other than just some of these proposals and here’s the big thing and this is kind of what I was getting at is even today. 

I read in the Wall Street Journal that the president proposed a 1.9 trillion dollar another Covid or pandemic bill another 2.3 trillion dollar infrastructure and again. I’m not trying to get political, I’m not saying it’s a good idea or a bad idea, I’m just looking at the facts of these are the proposals this is the spending and then this one is like throwing salt onto the wound 80 billion dollars to go to the IRS to help enforce the tax regulations. So just in one day in 2020 we were at 2 000 or 22 trillion dollars in debt okay after the pandemic and with everything else going on we’re approaching 30 trillion dollars in debt and so the question is what are we going to do are we going to print more money what’s going to lead to inflation are we going to lower our spending well I don’t see that happening or our tax is going to go up so I was just taking it back this morning when I read that so yeah I think taxes are a big risk big opportunity with some of the proposals abide in with getting rid of capital gains and the step-up in basis we’re having I had this conversation with clients and potential clients like four times yesterday of looking at your tax buckets figuring out how much do I have in the taxable bucket how much of the tax-deferred and then tax-free and then developing strategies to try to move as much as we can to the tax-free or if you’re accumulating wealth. 

How much to save so that would let me answer this question does your firm offer a full-service package to provide and or oversee all the services need to employ transfers something like a one-stop shop they include legal. So the question is what do we do so and I had a conversation with a potential client right before I walked in the first option is we can help you with a piece of the puzzle so maybe you want us to put together a trust maybe you want us to look at long-term care, or maybe you want us to look at managing the money we can help you with a piece of the puzzle or we can help you with a whole puzzle. Let me see if I can pull up the right one so really at the end of the day and this is where our firm started we started with just building in that legal structure but what we found is that all of this is green doesn’t really show up well we’ll do pink so we started here our firm so I started as a practicing attorney and then in 2008 we started adding these other additional services. Everyone needs some type of legal plan upon death whether it’s a will whether it’s trust it really just depends on your situation and then for my clients in retirement, the big thing is income how are we going to create that income is it going to be through social security is it pension is it drawing down our assets and then from there and this is a big risk. I think right now tax right and we’ve talked about why yeah and then another big risk is long-term care health care right and then wealth management and there are firms that all they do is just manage investments right these are some of the brokerage houses that type of thing, and then these are some like additional things like thinking about legacy and what is your goal in terms of your planning my pen is not working. 

But long story short yeah to answer your question yes we do legal financial and tax planning all under one roof where it’s coordinated and for a lot of the reasons I’ve shared that’s why we try to coordinate everything because the type of legal structure we’re going to create is going to help determine whether we want to do Roth conversions. Because if we move the money into an asset protection trust then it’s not going to be in a Roth or if we’re looking at maximizing our legacy what we’re leaving to the next generation. I was meeting with a client the other day they had an estate tax issue so the first or the easy answer would be to do Roth conversions to get more money out of those pre-tax accounts. Do the Roth conversion and now it’s income tax-free to the next generation but they also had the estate tax problem and Roths are not estate tax-free Roths are income-tax-free they’re not estate tax-free so instead of doing Roth conversions looking at where taxes are and where taxes might go maybe it makes sense to look at a different tool, in this case, irrevocable life insurance trust that can pass estate and income tax-free to the next generation. 

So again at the end of the day, the way we work with people in terms of legal financial and tax planning is to figure out what is their goal what are trying to accomplish let’s develop the best strategies and then and only then do we pick the tools so yeah to answer the question we do it is one-stop-shop we can help you with a piece of the puzzle or we can put together the whole puzzle another question what are the necessary estate docs that someone would need. So really there’s first we have what we call disability documents so we have a financial power of attorney so that’s a document appointing someone to make financial decisions then we have a medical power of attorney who’s going to make medical decisions. And then we can also have a personal care plan which outlines long-term care decisions so we have those three disability documents then we need to figure out what is our plan upon death and really we’re looking at two different documents you might have a will all it does is gives instructions to the probate court. 

Or you might have a will and a trust avoids probate can control the distribution and we can build in some additional protections whether we’re protecting from long-term care costs we can do that with a trust whether we’re protecting our beneficiaries from a divorce we can do that with the trust whether we’re protecting against the state taxes we can do that with the trust so it’s not like a trust you need a certain level of assets to do trust it’s all about what are your goals for that trial what are your goals and then figure out if a trust makes the most sense. And it’s not tied to your assets I had a client who had four million dollars and we did a will-based estate plan I had a client that had 50 000 and a house and they wanted to protect that and we did a Castle Trust protection trust so it’s really just about your goals so typically the legal documents. 

Most people need a trust a will financial power of attorney medical power of attorney may be a personal care plan and then also if you own real estate and this is something a lot of people miss I’d say nine times out of ten. When a client comes in and they’ve done some planning on their own or elsewhere a lot of times they miss the real estate they haven’t deeded the property to the trust even the individual. I sat with them today he just had a will done and there was nothing done with the real estate so if his goal was to avoid probate and he passed away right now prior to coming into our office then that his two pieces of real estate are going to end up going through probate so it’s again figuring out what are the goals and then picking the right tools is there an income limit before you can start a Roth. What other so the question is there an income limit before you can start a Roth so there are two ways to get money into a Roth one is a Roth contribution and that is where there is an income limit and it’s a moving target roughly about 190 well let me take a look I have it right in front of me for a Roth. 

It’s going to be 208 yeah so the bottom is 198 198 000 if you’re a married couple making less than 198 000 you can contribute to a Roth IRA if you’re making more than that it’s going to be phased out and once you get over about 208 thousand you cannot contribute to a Roth now the other way to get money into Roth and this is the way that most of my clients do it is they do Roth conversions where they convert the money where they move the money from the traditional IRA pay the income tax. And now they have it over in the Roth Roth contributions there’s no income limit you can convert as much as you want you just have to pay the tax on it do you have to leave the Roth account alone for five years before you can use it. Ideally yes there are different five-year rules and we’ve gone over those before but typically when you do a Roth conversion there are certain exceptions you don’t want to touch that conversion for at least five years depending on your age if you’re doing a Roth contribution you don’t want to touch that for typically five years from when you convert them or when you do the contribution typically it com becomes like an academic question anyway because a lot of times that Roth account is going to be the last money that you would want to touch anyways you want to take advantage of that tax-free growth is there a third-way backdoor. Roth IRA, yeah so there’s different names to these different things but really a backdoor Roth IRA is still a Roth conversion okay you’re contributing to an IRA and then you’re then converting it over to a Roth a backdoor Roth IRA or a backdoor Roth IRA is even if you’re over the income limit you can contribute to 401k or IRA and then just do a Roth conversion in that same year a little bit complicated there’s a couple of pitfalls you have to watch out for but yeah backdoor Roth IRA is basically contributing to an IRA 401k and then doing a Roth conversion really at the end of the day there’s two ways you can either contribute directly to the Roth or do a Roth conversion and a backdoor.

Roth IRA is just another version of a Roth conversion all right I manage our finances and accounts using quicken we have several auto payments including monthly balances and credit cards my wife has her own checking account but relies on me to alert her when the balance needs topping up how do you suggest we help her manage your checking account and auto payments if I’m no longer around to help. So if I can summarize that question a lot of times with a lot of my families we’ll have a married couple where one spouse kind of manages everything and the other spouse maybe isn’t the financial person in my household my mom has a finance MBA, She’s the one that balances the checks manages the finances in her house my dad was a professor very intelligent but just managing the money it wasn’t his thing and we see this a lot of times its one spouse kind of handles the finances maybe one spouse doesn’t and so a big concern is what happens if that spouse that manages the finances gets dementia, which I’ve had before or that spouse who manages the finances were to pass away how’s that survivor spouse going to kind of manage everything and this is not to plug our services but this is one of those things where if we are helping you with the legal financial and tax plan. Whether it’s us or someone else they can be that bridge so it’s almost a partnership with that one spouse who’s really managing things where okay we’re going to work together we’re going to pick the portfolio together here’s how we have the assets structured together but then when that spouse that manages it manages things passes away then that advisor can be the person that helps that surviving spouse transition can be a bridge if you will so that and so we would have to dig into kind of all the different things that we have set up. That’s why sometimes I have not to pick on my engineering clients but I do have a lot of engineering clients and working with they’ll come in with their spreadsheets and everything and if it’s hard for me to follow what you’re doing imagine how it’s going to be hard for your spouse who maybe isn’t in the spreadsheet world to manage things. And I’m not saying that you need to change what you’re doing or anything but just because you understand it your way doesn’t mean your spouse will or doesn’t mean your kids will. 

That’s where someone in like my position or someone who holistically advises you on legal financial attacks and they do this for a profession they’re going to be in a better position to understand your 15 different spreadsheets versus just leaving it to a spouse right so hopefully that was helpful please discuss irrevocable trust and high cost of taxes on an irrevocable trust can tax on irrevocable trust be lowered by distributing earned income then the beneficiary pays less tax. Yeah so had this conversation even today so if you look at the tax brackets and if you’re interested just email our office and I can send you our key data for 2021 which I reference this multiple times per day just reply to the invite to the webinar I have it sitting right on my desk because I like trying to memorize all these different numbers they change all the time but if you look at the bottom marginal tax brackets to get to the top marginal tax bracket right now which is 37 percent a married couple would have to have over 628 thousand dollars worth of earned income. 

So you need to make over six hundred and twenty-eight thousand dollars before you get to that top tax break where you’re paying 37 percent. Now a trust if you keep the income inside of trust the trust is going to get to that top tax bracket at thirteen thousand fifty dollars okay so like I had a conversation and I’m referencing kind of the same situation but they have an estate tax issue and so we’re talking about carving out two million dollars to move it into a family inheritance a trust to remove it from their estate for estate taxes, and we have this window of opportunity and so if we had two million dollars generating income. We’re going to get to that top tax bracket in the trust pretty darn quick so one of the things typically we’ll do is we’ll distribute the income out of that trust to the beneficiaries and now the beneficiaries can claim it on their own income tax. So I would say 98 of all the trust that we’ve set up do not pay trust income tax there might be some I can’t think of any right off the top I had but I would say 98 of the time we’re distributing the income where it’s taxed at a personal income tax rate, not at a trust tax rate. 

All right any other questions so I answered all the questions that came in ahead of time and then I don’t see any other open questions so if you do have any questions or if something was unclear please let me know all right I don’t see anything else coming in so yeah I’ll just leave it with what I saw this morning just looking at some of president Biden’s proposals another 1.9 trillion dollars going to the pandemic potentially another 2.3 trillion dollars going to infrastructure 80 billion dollars going to the IRS. So that’s spending and so on the other side he’s talking about tax cuts and  I know again just looking long-term, I see the government spending more money than it’s bringing in and so I think there’s a very good argument to say that taxes probably are not going lower than they are now that they’re going to either remain the same best or go higher in the future and so again I can’t stress it enough I think the biggest risk right now is tax risk not only income tax risk but also estate tax risk if you have a larger estate that would qualify for that estate tax because think about it like this if it does drop down to three and a half million dollars that’s where the estate tax drops to anything more than that might get taxed at forty percent that’s not even counting income tax. 

So if you have an IRA of four million dollars you leave it to the kids it’s getting taxed twice not only do they have to pay the income tax on it, but right off the bat anything greater than that three and a half million dollars would be a 40 estate tax too so again think about tax buckets we’re looking at. We know where the tax laws are now we’re watching where they’re going in the future and there’s legal so what type of trust should we use there’s financial should we be invested in a Roth should it be in cash value life insurance should it be in a brokerage account as well as obviously tax concerns, so all these things linked together and that’s why we do this type of holistic planning look another question came in whoops here we go more on irrevocable trust would trustee distribute earned income there’s different ways that we could structure the irrevocable trust but a lot of times we do have the trustee distribute the earned income so let’s say there’s a hundred thousand dollars in the trust, it goes up ten thousand dollars that would be taxable income we don’t want that taxable income to stay in the trust we distribute the ten thousand dollars to an individual who then would pay the tax and walks away with eight thousand dollars so yeah typically we would distribute the income out of the irrevocable trust. Alright, okay so with that I hope everyone has a wonderful week, I appreciate all the questions make it a great week and we will have this again next week and please invite anyone that you think would benefit from this, and if you do have questions feel free to always reply or send in those questions just in the subject may be put when Wednesday wisdom webinar and with that thank you so much