Annuities Allowed in 401(k)s

From CNBC and Bank Rate comes this news that the Treasury Department is now allowing annuities in 401(k)s, at least in some circumstances. This may be a useful retirement, financial and/or estate planning tool for various Americans.

If my law firmJohnson Law KC LLC, can help you or your family with your personal estate planning or small business needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free consultation.

(c) 2014, Stephen M. Johnson, Esq.

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Estate Planning and Relationships

About a month ago, I had the pleasure of attending a wedding of two dear friends. A month or so before the wedding, I shared some advice with the groom (I’ve shared the same advice with other friends over the years). Every bride and groom encounter various financial, tax, and legal questions in the busy and chaotic wedding planning time and after the honeymoon’s over and the new couple adjusts to life together. Good planning is crucial. Nobel Laureate T.S. Eliot memorably wrote, “What we call the beginning is often the end/And to make an end is to make a beginning./The end is where we start from.” (The Four Quartets, Little Gidding, V). True with estate planning as with many endeavors in life. So what’s the end game? Start from there to figure out how to get there. 

Pre-wedding tips:

  • Don’t buy your fiancé expensive gifts in his or her name. Whether a car, house/condo, jewelry, vacations, clothes, furniture, artwork, antiques, or other big ticket items, wait until you’re married. Federal law allows you to give your fiancé a gift of up to $14,000 tax free per year, but if the item costs $14,001, you’ll owe gift tax and have to file a gift tax return (not fun or romantic). The IRS says a gift is anything you receive without paying fair market value. (Kansas and Missouri don’t have state gift taxes.) Instead buy the item in your name and give it to your spouse once you’re married, as husbands and wives can give each other unlimited gifts without tax consequences.
  • Don’t add your fiancé to real estate deeds until you’re married. Again, any gift (like a house or farm) over $14,000 will cost you gift tax and require filing a return with the IRS.
  • Don’t pay off your fiancé’s credit cards, car or student loans before you’re married. Gifts are romantic, but gift taxes aren’t. Wait until you’re married.

After the wedding:

  • Execute living wills, and durable medical and financial powers of attorney. These are inexpensive, but vital documents that can last for decades. Your spouse can’t talk with your doctor, authorize surgery, or make financial decisions for you without these documents in place. My firm’s financial powers of attorney include cutting edge digital estate planning and elder law provisions, standard. My firm’s living wills and medical powers of attorney include HIPAA, HITECH, and Affordable Care Act (ObamaCare) privacy releases and can easily be custom tailored at no extra charge to reflect your beliefs and convictions about end of life treatment issues. (Having these done as a single person is wise, especially if you have health issues, travel frequently, or have various assets (family business stock or a small business, home mortgage, intellectual property, etc) – you can change your attorney in fact (or agent) quickly and inexpensively once you’re married.
  • Execute a will and/or trust. Simple, no-frills wills for a couple are economical. Wills that include a trust (testamentary trusts), or pourover wills that leave everything to a standalone trust are also affordable. Kansas law automatically invalidates an existing will when you get married and have a child. Missouri law is different. A will or trust allows you to leave specific instructions for how you want your financial affairs handled, how much your spouse and children receive, who cares for your child, and so on. Kansas and Missouri both allow a separate personal property list (highly recommended) to leave specific items to different family members or friends. Whether you’ve got $5,000 in student loans or $5 million in your stock portfolio, you need a will or trust. If you die intestate (without a will), your family will pay more for probate administration and endure a longer, more complex court process than if you have a will. And who wants the government to dictate how their things are distributed and who gets what? My firm has worked on dozens of probate estates in Kansas and Missouri, but it’s easier on everyone to plan ahead. Avoid LegalZoom, Rocket Lawyer, and other do-it-yourself books or websites – I’ve seen (and fixed) online/DIY documents for clients that any practicing attorney would’ve been embarrassed to have drafted. Like many other services, you get what you pay for – good planning requires expertise. My firm has the training and expertise to guide you through the process, leavened with friendly counsel.

A few other ideas for newlyweds:

  • Joint or separate bank accounts
  • Change IRA/retirement plan beneficiary to spouse
  • Change life insurance beneficiary to spouse
  • Car titles – joint or separate
  • Real estate – joint or separate – joint tenancy in Kansas or Missouri; tenancy by the entirety in Missouri
  • If you’re moving to another state once you’re married, you have about 30 days to change your driver’s license, legal name, etc

My firm has experience working with young professionals, young families, and newlyweds to make the estate planning simple, easy, and inexpensive. My firm also has experience working with high net worth individuals and families with tens of millions in assets, closely held businesses, real estate, and other issues. We provide reliable, easy to understand documents so you can rest easy and enjoy your life. Give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient, free consultation.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

(c) 2013, Stephen M. Johnson, Esq.    

Professional Accountability

The Daily Mail (UK) has this article about the circumstances surrounding the execution of Hughette Clark’s will. Hughette Clark was the reclusive daughter and heir of a wealthy U.S. Senator. (Ms. Clark died at 104 in 2011, having spent about the last 20 years of her life in a hospital room in New York, cut off from her family and friends (by her lawyer and accountant), while her large estates in various states sat unused for decades. Ms. Clark left an estimated fortune of $307 million.) According to papers filed in the New York probate court, where her will is being contested, she was “incoherent and barely able to hold the pen” while signing the documents. To make matters worse, her lawyer, accountant, and the hospital were conspiring to enrich themselves at her expense. Both her lawyer and accountant were to inherit large sums of money from her (her family being cut out entirely) and they apparently took the signed will with them to the local bar to celebrate their good fortune after convincing her to sign the document.

In Kansas and Missouri, lawyers are required to attend legal ethics courses as part of the continuing education requirements. If you don’t attend continuing education, you can’t keep your law license. For attorneys, there are at least 2 glaring ethical violations here: (1) you never allow an incapacitated client to sign a legal document (you always talk with the client first to be sure they know who they are, what they own, and who they want to give it to) and (2) you rarely, if ever, accept any gift in a will from a client. Kansas law says an interested witness (e.g. a lawyer who’s receiving a gift from his client) can’t inherit more than he would be entitled to if the client died without a will. Missouri law has similar provisions. Accepting a gift in a will from a deceased client raises serious ethical issues. Unfortunately, Ms. Clark’s lawyer and accountant did her a great disservice by not acting professionally and by not watching out for her best interests.

At my firm, Johnson Law KC LLC, we work hard to serve every client’s needs with integrity and clarity. If I can help you or a loved one with estate planning, asset protection, elder law, or small business needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Offshore Banking

Costco’s member magazine has this interesting discussion about offshore bank accounts in its July 2013 issue. (I also recommend this interview with noted author Tom Wolfe, which explores his life and writing.)  They ask various members whether offshore bank accounts are ethical, should be legal, or should be taxed differently than American bank accounts. We know that many celebrities and politicians have offshore bank accounts – see this blog post for more details.

Ethical questions about offshore banking center on whether the account owner is paying a “fair” level of tax on the account. Complicating matters is that the IRS Code treats Americans’ investments abroad differently from other countries – the IRS collects tax on an American’s accounts or investments anywhere in the world, while many other countries only collect tax on accounts their citizens hold domestically (e.g. a Briton who holds an account in London and an account in New York would only pay British taxes on the London account).

Offshore banking may be unavoidable, even inevitable, for many professionals and business owners. If you have a factory or business colleagues or partners overseas or offices around the globe, you may have to use offshore banking accounts. And many companies, mutual funds, IRAs, and other investment vehicles have extensive overseas holdings, which can be a good thing to diversify accounts, invest in emerging markets, and collaborate with business partners around the world.

What do you think? Should offshore accounts and banking and tax havens be allowed or outlawed? Are they ethical? If so, when? Should they be taxed differently than American accounts or investments?

If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning or asset protection needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation.

(c) 2013, Stephen M. Johnson, Esq.

British or American English?

British or American English? Tea or coffee? Whether you’re a fan of the Brits (as I am) or not, check out this interesting article  in Wealth Management about the differences between English and American per stripes. Many lawyers will recall this discussion from their law school days studying estates and trusts. “Per stirpes” is a Latin term that means “by the stocks” and refers to who inherits your estate if you die without a will (intestate). Most wills include the term “per stirpes” or “taking by rights of representation” in their definitions section (although those terms aren’t always used in the Kansas or Missouri probate code). This article is a good reminder to attorneys and clients alike: be sure your estate planning and other legal documents say what you want them to say. Using Latin or French or other “legalese” is dangerous if you’re not certain what the terms mean, and if your attorney can’t explain a document to you in plain English, (1) tell him or her to rewrite it or (2) hire an attorney who’s more knowledgeable.

Some lawyers use big words and convoluted sentences in documents because they rely on old forms (from the 1970s or 80s or even older). My law firm, Johnson Law KC LLC, has a personal service, client-centered approach – I personally craft and review every document for a client to make sure it’s readable and that my client understands what it says and does. You get the best of both worlds – big firm expertise with small firm personal attention. I often review and revise my firm’s documents based on the latest developments in the law, business, and taxes, with an eye towards improving readability and organization. I invite you to experience the difference. If I can serve your legal needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation. On a personal note, thanks for being a part of this conversation for 100 posts and counting – I look forward to sharing many more posts and conversations.

(c) 2013, Stephen M. Johnson, Esq.

Tax-free Retirement?

CNBC has this helpful article about how to plan for a tax-free retirement with lots of good tips and portfolio ideas. Many retirees can expect lower income tax bills than those of us still working (and earning more income), but the article wisely points out the wild card – the Congress/tax wild card.

Thoughts? What are your ideas for planning a tax-free retirement?

If my law firm, Johnson Law KC LLC, can help you or your family on your estate planning or other legal needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient and free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Kansas City Wealth

The Forbes annual billionaire list has many old names and a few fresh faces. This year, 4 Kansas City area residents made the list – Neal Patterson, of Cerner, Donald Hall, of Hallmark, and Min Kao and Gary Burrell, of Garmin. Congratulations to each of them on successfully building and preserving wealth amidst a challenging economic environment.

Most of us won’t be making the Forbes billionaire list any time soon. But most of us do have homes, cars, bank accounts, stocks, or a retirement plan. Everyone from Bill Gates to Joe Six Pack needs estate planning documents. Don’t bet on legal forms from the Internet or library. Two things to think about: (1) if you’re an adult, you need a will, living will, and durable medical and financial powers of attorney, and (2) if your family’s future well being is at stake, you want to be sure everything will work smoothly when it’s needed. If my firm, Johnson Law KC LLC, can serve your estate planning or business transition needs, call (913-707-9220) or email (steve@johnsonlawkc.com) me for a convenient, free consult.

(c) 2013, Stephen M. Johnson, Esq.

Time to Sell?

Thinking of selling your business, transitioning it to the next generation, retiring, or moving onto the next great entrepreneurial idea? Bloomberg has this interesting article noting that many financial advisors are recommending that their wealthy clients sell their businesses by the end of 2012 to avoid tax hits in 2013. As we approach the expiration of the Bush tax cuts (on the estate, gift, generation-skipping, and capital gains taxes), the Obama tax cuts (on payroll taxes), and massive planned spending cuts to the federal budget on the one hand, and a potentially historically close election on the other hand, we’re entering a perfect storm. While no one can predict what will happen with taxes, the economy, or the election, if you’ve got a business and you’re looking to sell, now’s a good time to get out and enjoy the fruits of your labor. The article also recommends some good ideas on stock options, capital gains, and Roth IRAs.

Our firm, Johnson Law KC LLC, has the depth and breadth of legal and business expertise to advise you and your family on arranging a sale or other exit from your small business, as well as serving you and your family’s estate planning needs. If we can serve you, please call me (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient appointment.

(c) 2012, Stephen M. Johnson, Esq.

Roth IRA: Good for All Ages

Smart Money has this article recommending that parents set up a Roth IRA for their teenage children. Good idea: it’s never too soon to help your family, loved ones, or friends get a jump on saving for their future. And once your child reaches retirement age, they’ll be able to take IRA distributions tax free, a major Roth advantage. If our firm, Johnson Law KC LLC, can help you with your estate planning needs or provide you with more information about retirement savings strategies, or any of your legal needs, give us a call (913-707-9220) or email us (steve@johnsonlawkc.com) to schedule for a convenient appointment.

(c) 2012, Stephen M. Johnson, Esq.

What’s Your Number?

The WSJ has this interesting article about retirement planning. What’s your number? The Wall Street 2: Money Never Sleeps clip features a Wall Street mogul replying with a smile to the young trader’s proverbial “how much is enough” question “more.”

In the WSJ article, Fidelity Investments suggests that folks should save “at least 8 times their final annual pay” for basic retirement living expenses. So if your final salary before retirement is $100,000 per year, you need $800,000 in your IRA or Roth IRA to retire. For younger workers, like myself, Fidelity says that by 35, aim for “an amount equal to your annual pay.” So if you earn $50,000 a year by 35, have $50,000 in your IRA. Fidelity says by 45, you want “three times your salary,” and “five times your salary by 55.” If you’re like me, those numbers are daunting, but it’s not too late to start saving and investing to enjoy your future with your family. After all, compound interest is the 8th wonder of the world. Harnessing the power of compound interest in your IRA or Roth IRA will explode your retirement savings as you go through life.

The WSJ article rightfully recommends “The more you make, the more you need to save, not just in dollars but as a multiple of your final salary.” Lifestyle and standards of living also matter – one person’s comfortable life is another’s posh lifestyle or “slumming it” for yet another person. You don’t have to only use an IRA or Roth IRA for your retirement – stocks, downsizing your house, and other options work fine too – but IRAs and Roth IRAs are among the most tax efficient investments for funding retirement, so you’ll be working less and making more, paying fewer taxes, getting more bang for your buck.

If you don’t have an IRA or Roth IRA, you’re letting a golden opportunity to save and invest money tax free for retirement slip away. If your employer matches your IRA contribution, contribute at least as much as your employer’s match amount. We work with a number of top retirement, insurance, and investment professionals around KC to provide holistic estate planning services for you and your family’s unique needs. If Johnson Law KC LLC can help you review or implement your estate plan, give us a call (913-707-9220) or email (steve@johnsonlawkc.com) at your convenience. We’d love to work with you no matter where you’re at in the process – young professional just getting started in life, mature worker plugging away at work and home, or retired couple trying to leave a legacy for the grandkids. You want our firm’s legal and business expertise on your team and you can rely on our 50 years of combined experience for all your legal needs.

(c) 2012, Stephen M. Johnson, Esq.