How Much Does a Retirement Benefit Trust Cost to Be Drawn on Your Firm? |Weekly Wednesday Wisdom Webinars

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.

In this week’s webinar, Attorney and Advisor Chris Berry of answers the below questions.

  • 0:00 Introduction / Positive Focus
  • 1:56 I inherited my mom’s IRA in 2015 and taking yearly withdrawals. Am I grandfathered in for the law change or do I need to take it out within 10 years of my mother’s death?
  • 5:55 Why do I need a trust, I am joint with my wife on many accounts and use beneficiary designations. What does a trust do that joint ownership or beneficiary designations cannot do?
  • 12:05 In documents is to “my descendants” the same thing as a”my children”? And what is “per stirpes”? Would adopted children be included?
  • 18:09 Per Stirpes vs. Pro Rata
  • 20:19 How much does a retirement benefit trust cost to be drawn on your firm?

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Episode Transcript

Do these webinars once a week, and we record them and they go on to our YouTube channel where we have a lot of educational content if you haven’t checked it out, just google Castle Wealth, YouTube, and I’m sure we pop up. And with that, we’ll go ahead and get started. So my name is Chris Berry, of course with castle wealth. And every Wednesday at one o’clock we talk legal, financial and tax planning, answering any questions you have or have submitted ahead of time. This week, we have three questions that I received ahead of time. So if you do have any other questions, feel free to put it in the q&a. And I’ll take shot at getting it answered. And I was like start these with a positive focus, just something positive that happened over the past week. And last, or yesterday, last week. Yesterday, we had our first soccer practice to the season. So my little daughter, Madison, who’s a eight year old, coaching her in soccer, and then tonight, I’m coaching my 11 year old son, Ryan and soccer. So soccer is starting up. Pretty excited about that. And I also coach it with my dad, which is kind of fun, too. So it’s three generations of berries running around out there. So that’s my positive focus always like to start with something positive. And without, I’ll go ahead and share my screen and we’ll get into the question. The tap button and that button and I hit this button.

And if you do have questions, feel free to put it in the q&a. Or you can always schedule a time at 15 to get on my calendar that connects right to my calendar. So it makes it nice and easy. Oh, this thing over here, this over here, I organize my computer screen. So first question. I’m here to let me see if I can be there. That way, it’s easier for you to see. I inherited my mom’s IRA in 2015. And taking yearly withdrawals? Am I grandfathered in for the law change, or do I need to take it out within 10 years of my mom’s death. So what we’re talking about here, big thing here is we’re talking about free sounds like pre tax money could be a Roth, but I’m guessing it’s pre tax dollars. And prior to the secure act, whenever you inherited an IRA, you couldn’t just put it into your IRA, this was a question actually came up in a client meeting I was having yesterday. So if mom dies, you can’t just take her IRA now put it in your IRA, because the rules are different, even prior to the secure act, it would become a inherited IRA. And what that means is even if you’re younger than 59, and are younger than prior to the secure act 70 and a half, when you had to take out required minimum distributions, you had to take money out of the IRA. So an IRA, individual retirement account, if you take money out prior to 59 and a half, you’re going to be penalized. If you forget to take money out of IRA, it used to be 70 and a half, this was called your required minimum distribution, you would be penalized. Here, it’s a 10% penalty, your if you forget to take the RMD it’s a 50% penalty, so don’t mess around with the government there.

But what happened was the secure Act was passed. And so the secure act did two things. And this was passed in 2,021st of all it pushed back the 70 and a half age now to 72. But then, let’s say mom passes away, leaving you this IRA. And this IRA goes to you, you cannot put it into your own IRA, now it becomes an inherited IRA. So you would have your IRA that follows these rules of Okay, I can’t pull money out to 59 and a half without penalty. And then at 70 and a half 72, you have to start taking rmds. But then you’d also have your beneficiary or inherited IRA, and with the inherited IRA is or says prior to the secure act is that you have to take out rmds no matter what your age is. So it’s 70 and a half, or 72, it might be about 4% that you have to take out. If you’re let’s say 25 and you have this inherited IRA, and you had to take out rmds basically, the younger you are the less you have to take out. So it might be like 2%. But because it’s inherited IRA, you’d have to take out these rmds. Now that changed with the secure act. So what the secure Act says is, hey, if you have a inherited IRA, now what’s gonna happen is that all the taxes have to be paid within 10 years and it could be spread out or you could wait to year 10 but either way you have to pay all the tax within 10 years.
So this question is asking, Well, what happens if mom passed away prior to the secure act? Well, then what’s gonna happen is you’re grandfathered in. So you’re still operating. If you have an inherited IRA that was established in 2015, you still, you’re following the old rules, which means that you can still do what we call a stretch IRA, where you stretch it out over your lifetime. So hopefully, that’s helpful. And that’s where a lot of times when there are law changes, a lot of times they grandfather things in one of the interesting things bouncing around with President Biden’s proposals is there’s some talk of them not grandfathering in some of the potential changes this year, if it does pass this year. So that’s kind of interesting. But yeah, typically, when they make a tax law change, they grandfather in things that would be affected previously. So we hope that remains the case with some of these proposed changes coming. Next question, why do I need a trust? And I always say, the trust is a tool, first, we figure out what is your goal, and then figure out the best strategy and then pick the right tool. So not everyone needs a trust. I’m drawing with my wife. So we’re joint with our wife. And we’re using beneficiary designations. What does a trust do that joint ownership or beneficiary designations cannot do? Well, first, like I talked about last week, estate planning really kind of addresses some key issues.

So when we’re talking about estate planning, really what we’re doing is we’re talking about the four P’s. And it’s just depending on like, how concerned we are with these things. So the first thing is avoiding probate. Everyone wants to avoid probate. probate is a bad thing. It’s costly, it’s time consuming. So probate will do that read. So we want to avoid probate. Second, we need to kind of control people to a certain extent. And in third, a lot of people want to protect against predators. Whether those predators are the IRS or long term care costs, etc. So probate, avoiding probate. How can we do that? Well, we need to understand how estate administration works. So estate administration. There’s four ways assets transfer, one is through joint ownership. So joint ownership is great for a married couple, but I wouldn’t recommend naming anyone else drawings on your accounts. Like you shouldn’t be naming your kids drawing on those things, because you’re opening yourself up to all the potential liabilities of those people. Second way assets may pass are through beneficiary designations. So you mentioned that you have beneficiary designations on everything. That’s good. One question I always ask. So one potential problem. What have you done with the house, we need to make sure we do a ladybird deed. So what have we done with the house? Because typically, you don’t want to name your kids joint on your house. So beneficiary designations were three would be a trust. So yeah, to answer your question, if you’re only looking to avoid probate, you can rely on any one of these three mechanisms to avoid probate.

All of them are viable, all of them avoid probate. So if your goal is to avoid probate, you don’t just need a chair, you don’t need necessarily a trust, if your only goal is to avoid probate. But beneficiary designations really what you’re doing is just launching a pillowcase of money of beneficiaries. And that could be a problem for one or two reasons, one, poor financial mismanagement, like I got off a call today with a client and she has a 23 year old son, and doesn’t want to leave everything outright to a 23 year old because she’s concerned about poor mismanagement of the money, he’s not going to spend the money wisely. He might, he makes some poor choices. But most of my clients, they feel comfortable with her kids and and they’re comfortable with that managing the money after death. But then we get into some of the people problems. And this is where, through proper trust design, we can protect against some of these things. And this is where trust can help out. So maybe let’s maybe instead of the outright distribution, maybe what we’re concerned about is not the poor financial mismanagement of the beneficiaries, but maybe we’re concerned about the outside environment. Maybe we’re concerned that if Hey, we’re leaving things to a child, an adult child that’s married and has kids of their own. What happens if that child gets a divorce, maybe half that money could be lost.

What happens if That child passes away. Well, all that money might go to a spouse versus going to it in law. So one of the reasons why some clients do opt for a trust is because they want to give the opportunity to their children or beneficiaries. So that whatever they inherit from them, if anything are protected for their lifetime, from creditors, from divorces, the money stays in the bloodline stays in the family. So if a child passes away, the money doesn’t go to a in law who might remarry? It goes down to the beneficiaries. So beneficiary designations and joint ownership, they avoid probate, but they don’t answer some of the people problems that can arise in estate planning. And a lot of times my clients do trust their kids. It’s just they don’t trust outside environment with the divorces, creditors, bankruptcies. So that’s why I’d say majority of my clients do lean towards a trust. But I don’t think everyone needs a trust, because it’s based on your goals. And then we figure out what are the best strategies, and then maybe a trust makes sense. And then also, we haven’t even gotten into protection from things like long term care costs. There might be tax reasons why we want to do a trust, there might be other asset protection reasons to do a trust. So yeah, if our goal is just to avoid probate, everyone’s kind of first starting point is there, then maybe we don’t need a trust. But if we get into some of these people issues, maybe I want one person wrapping up my affairs, that type of thing, then we need to get into deciding whether a trust makes sense. And then if you have some goals of asset protection or protection for long term care, then we for sure need to talk trusts, not just relying on beneficiary designations and joint ownership. So hopefully that was helpful. See Any questions? No, now? Good. All right. Next question. In documents, my deceit and in documents is to my decedents. The same thing is my children. So kind of a technical question. But I would answer it is yes, both of these mean the same thing. Meaning it flows down the bloodline, and that’s technically what herpes means. It’s Latin means the assets flow down the bloodline. So let’s say we have a, say an individual, and they have two kids. And this person has two kids. So if we said it flows down the bloodline, so if this person Pat, if the top person passes away, and we say to children or decedents per stirpes, then that 100% is split into two separate share. So we have 50% going here, 50% going here. And then the language passerbys means that flows down the bloodline. So if this person were to pass away, then their share does not go here.

That does not happen. What happens to their share is that 50% flows down to their children. And that’s another reason why a lot of times we like to utilize a trust to ensure that this happens, because if we don’t do this, there might be a spouse. Where if you’re, like most married couples, if one spouse passes away, everything goes to the surviving spouse. But with a trust, we can force the money to go to the children instead of the grandchildren instead of that surviving spouse, the law. A lot of times we call the outlawed end of the day. That’s another reason why trusts are commonly used. Yeah, so is documents to my state and same thing as my children. The answer to that is yes. And what is masterpiece? close down the bloodline. Oh, and then the last part of the question, what adopted children be included? The answer is yes. So when you legally adopt someone, you’re bringing them legally into the bloodline. So they would be considered legal children or decedents if they’re legally adopted. Not stepchildren, stepchildren. Do not count stepchildren are not my children. stepchildren are not my descendants. So that’s where sometimes with trust planning, we’re either including, we might be including the stepchildren depending on the relationship, again, getting into some of the people issues that pop up. That’s why sometimes People do opt for a trust based plan. And I had an interesting client meeting earlier where we had Mom, mom had three kids, but there’s a lot of grandchildren and even great grandchildren. And some of the grandchildren were kind of running into issues with multiple marriages. And so we were trying, it was getting difficult considering who were actual, even though she considered a lot of them all her grandchildren and great grandchildren. Some of them were legally adopted, some of them were staff at some of the steps, she wanted to include it. So it can be a little bit confusing. Sometimes we kind of map out a family tree to figure it out. But yeah, so adopted children, legally, legally adopted children are included. What would not be included in this definition would be stepchildren. And we certainly

could include the stepchildren we just have to kind of specify who they are. So so that’s three. All right. So I had three questions submitted ahead of time. If you do have any questions, now’s the time to put them in. Or something I mentioned was unclear. We need some clarification. Just let me know. But otherwise, I don’t have any other questions. So what we learned today, we learned about per stirpes. You can use that at a cocktail party. And wow, everyone with your under like a define. So there’s a difference. A lot of times we’re doing one or two ways we’re doing either per stirpes are you doing with your recovery from your hip replacement? I’m doing really good actually. Yeah, so I had a hip that was totally replaced March 9. And it’s amazing medical technology. I go in there. And it’s been bugging me for years to the point that I was having troubles walking, and it was keeping me up at night and chasing around my kids is a little bit difficult. So I had surgery in March 9, and I go in at 630 in the morning, had surgery at 830 was done by like 930 physical therapy at one o’clock, and then they kicked me out at 330. So total hip replacement was outpaced patient surgery. And they said, so I started with a walker, and then a cane and then walking on my own. And then June 1, they
said I can do basically whatever I want. So I went ran four miles, and my wife said I was an idiot. I said, Hey, they did so good. fixing my hip first, I might as well grind it down again. But yeah, everything’s going good. I’m running around with my kids coaching soccer. It’s not 100% it’s not perfect. I’m not back to basketball, or jujitsu, or anything crazy like that. But I can work out again and run and I’m in a lot less pain. So thank you for asking. That’s very nice. So one thing I wanted to continue talking about is pursed lips. Just the difference between per stirpes, which is typically the way that we do it, versus pro rata. So this is typically the way the two ways that we might do it in the trust, I’d say, probably 90% of the time, we’re doing it that way. 10% we’re doing pro rata. So the difference is, so first herpes, here’s how it works.

This is like law school stuff. It’s one of the few things that I use in law school, I don’t use any of my criminal stuff. So perstorp is exactly how I explained it before one person passes their share goes is split evenly amongst the beneficiaries. And then likewise if it goes down. So if, if one, we kill off one person here and this person, then the way ends up is 50% of the total estate here. 25% here, 25% here, so that’s purse derbies. pro rata means it goes the other way. These are Latin terms. Us attorneys and advisors. We like a Latin terms. So this is how pro rata goes. And I saw one. One other question. Someone said congrats on the recovery. Thank you. Sweet. So this is how pro rata works. So this is the other way that we typically do it in terms of residuary distribution. So one person passes away, their share goes here, they pass away. So instead of it flowing down to the kid grandkids, that does not happen. So this does not happen. Person A gets their 50% and then also the other 50% goes to them. So it kind of stops at the at the level so it’s split up evenly amongst the remaining survivor’s at that level. So these people get nothing at the end of the day. So that’s difference between pr surfeys pro rata. This is more this follows down the bloodline. And the way typically we see thanks, a, here’s another question that just came in. How much does a retirement benefit trust cost to be drawn up by your firm? I’m going to be that frustrating attorney and fiduciary and say it depends. Any type of planning, we first sit down and have a conversation, send you a short personal information form, gather some basic information, figure out what else might be missing. And then from there, we figure out where yet we figured out where you want to go. And then we figure out how best to help you get there. And we do always work on a fixed fee basis versus I really say no upfront what exactly the investment is. So unfortunately, the answer is it kind of depends. Typically, you’re looking at least a couple grand at the very least. But feel free to reach out to our office. Happy to help you with that. All right. Well, thank you. No other questions that I see. Thank you, everyone. Make it a great week. appreciate all the questions.

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