April 28, 2015

Understand the Ins and Outs of an Inherited IRA

Bringing unique tax issues to surviving spouses, Inherited IRA’s provide the surviving spouse with various options as to treatment of the account. First, he or she can remain the beneficiary of the account. Instead, assuming the spouse is the sole beneficiary, he or she can treat the IRA as his or her own. Alternatively, if numerous beneficiaries exist, the account can be split up so the spouse’s portion becomes its own account. If a spouse chooses this option, the IRA will then be titled in his or her name and he or she will have the right to name new beneficiaries.

Be wary though, there are requirements that must be fulfilled to avoid IRS penalties. If the spouse has not reached age 59 ½ yet, withdrawing from the account will result in a 10 percent penalty. In addition, required minimum distributions (RMD’s) must be taken by the spouse by April 1 of the year after he or she turns 70 ½. RMD calculations can be difficult to calculate and the penalties harsh, but that’s why we’re here!

Inherited IRA’s require beneficiaries to meet the requirements of some very particular, constantly evolving tax rules. It is important to communicate the recent Supreme Court decision of Clark vs. Rameker, where the Court ruled that funds held in inherited IRA’s do not meet the definition of “retirement funds” for bankruptcy protection. It was declared that the funds held in inherited IRA’s are essentially “freely consumable” by the beneficiary, and as a result should be available to the creditors of the beneficiary as well. Therefore, inherited IRA’s will no longer be protected in bankruptcy.

In order to protect these funds from creditors, a surviving spouse should roll the IRA into their own account (as mentioned above). With regard to non-spousal beneficiaries, an alternative is to have the original owner of the account name a trust, rather than a person, as the beneficiary. But once again, these approaches are governed by complex rules so don’t do this without help from an expert.

Let your Anders advisor help you figure out the most advantageous way to handle your inherited IRA.

All Insights

April 14, 2015

Top 10 Post-Divorce Actions to Consider

You’ve taken all the right steps to finalize your divorce, so now you can breathe a sigh of relief – right?  Not so fast.  There is still plenty of work to do.  Listed below are the “Top 10 Post-Divorce Actions” one should consider taking after finalizing a divorce.

  1. Update Legal Documents – Hire an attorney to update all legal documents or create new documents, such as wills, trusts, power of attorney, and health care directives.  All prior documents should be legally destroyed or revoked.
  2. Change Beneficiary Designations – Change beneficiary designations for all life insurance policies, retirement plans, individual retirement accounts, and stock option plans.  Some plans may require a new beneficiary designation form be completed even if you are keeping your ex-spouse as a beneficiary.
  3. Transfer Property – Transfer all property to the designated party as provided for in the divorce decree or settlement agreement.  Legal documents may need to be prepared in order to transfer certain asset, such as a quitclaim deed for a real estate transfer or a Qualified Domestic Relations Order (QDRO) for division of a retirement plan.
  4. Change Name – Consider changing your name if you have a hyphenated name or took the last name of your husband.  If you decide to change your name, you will need to notify a number of agencies and institutions, including the Social Security Administration, department of motor vehicles (driver’s license), U.S Department of State (passport), financial institutions and credit card companies.
  5. Close Joint Accounts / Liabilities –Close all joint accounts, including bank accounts, credit cards, lines of credit, mortgages, and utilities.  You should run a credit report after sixty days to confirm all joint accounts have actually been closed.
  6. Change Passwords / Access Codes – Consider changing all passwords and access codes, including such items as web based access to accounts (bank accounts, credit cards, retirement plans, etc.), email accounts, social media accounts, personal safe, and home alarm systems.
  7. Financial Planner & Tax Advisor – Meet with a certified financial planner to update your financial plan or create one if such a plan does not exist.  You should also meet with a certified public accountant (CPA) to review the income tax ramifications of your divorce.  Your CPA can assist you in projecting your tax liability, which can result in a need to change your payroll withholding allowances or make quarterly estimated tax payments.
  8. Copies of Divorce Decree – Secure extra copies of your divorce decree and settlement agreement.  Keep these documents in a secure place with your other important documents.  There will be times when you are required to produce copies of these documents, such as when transferring property or making a claim against your ex-spouses Social Security benefits.
  9. Obtain New Credit – Open a credit card in your own name.  You should use the credit card to begin establishing a credit history, but do not go overboard.
  10. Children – Start keeping a journal regarding visitation and child support payments if there are children involved.  Keep track of the money you spend on the children.  This information could be very useful in the event your ex-spouse decided to file a motion to modify in the future.

It should be noted that not all of the actions listed above may be applicable to your divorce situation.  If you have any questions regarding any of the actions listed above, or for other actions you should consider, please feel free to contact a member of the Anders Forensic and Valuation Services Group.

All Insights

April 9, 2015

How to Exit Your Business in Style

Having worked with owners to create successful exits, we know that it is critical to set goals and help you establish three principal exit objectives before moving forward with your Exit Plan:

  • How much cash do you need when you exit to support the lifestyle you desire?
  • When do you want to leave the company?
  • Who do you want to sell/transfer the company to?

The best way to best explain exit planning may be to share an example. Let’s look at an owner who arrived at his exit date without a complete plan to reach his goals.

The owner of a 45-employee plastic extrusion company had long thought of transferring his business to a son and a key employee, but had done little to prepare for that transfer. As tougher economic conditions challenged his company, and he reached his 58th birthday, he decided it was time to retire.

He had established two of the three Exit Plan Objectives critical to all successful business exits:

  • Determined he didn’t want to work much longer in the business
  • Decided he wanted to transfer the business to a son and a key employee

But what about the third Exit Plan Objective?

How much money does he want or need when he leaves the business? At this point, he had two choices:

  1. He could retire immediately and try to sell the company for cash—but not to his son and key employee. They had no cash and no bank would lend an amount even close to the amount of money necessary to close the deal. If he wanted to sell today and receive an amount that would support his post-exit lifestyle, he would have to sell to an outside third party with sufficient cash.
  2. He could sell the company to his son and key employee, but wait six to ten years to receive (hopefully) the entire purchase price.

This example situation illustrates why setting your objectives or goals, understanding how each affects the other, creating a plan, and then acting to reach those goals is so critical to a successful exit.

If you prefer to leave your business in style, which, to us, means leaving your business to the successor you choose, on your timetable and with the amount of cash you desire, you must take time to formulate specific, consistent, attainable goals and objectives.

Don’t be an owner who is too busy working in your company to work on the most important financial event of your business life.


All Insights

Keep up with Anders

Want to keep up with all the latest insights from Anders? Subscribe and receive the information that matters to you.

  • This field is for validation purposes and should be left unchanged.