Article 1
Does your estate plan take into account your IRA?

Retirement funds often make up a large portion of an estate, but are generally controlled by beneficiary designations rather than a will.

Setting up an Individual Retirement Account is generally a simple process. IRAs become more complicated in retirement when mandatory distributions and pitfalls abound with inheritance.

The main requirements for setting up an employer-provided 401(k) or 403(b) are filling out a one-page beneficiary designation at the start of employment and listing how much you want withheld from each paycheck. A generous employer may match your contributions. A Roth IRA with direct debits from a checking account also operates a bit behind the scenes. Investments then grow tax-deferred or tax-free over the years.

Because of the beneficiary designations on these accounts, a Connecticut testamentary will does not usually control these accounts. It is important to review and update these forms with any life change (birth of a child, divorce or marriage) so that an ex-spouse does not inherit an account rather than a child.

A conversion and stretching IRA distributions

Some individuals may want to consider converting a traditional IRA to a Roth IRA as a part of an estate plan. Paying federal and possible state tax on the conversion is akin to a gift to heirs who can then take qualified withdrawals tax-free from the inherited Roth.

In addition, required minimum distribution rules do not apply to Roth accounts. These rules generally require an individual to take minimum distributions at age 70 ½ and pay taxes whether the income is needed or not.

The benefit of leaving a Roth account to heirs is that it may stretch for many years. Assume that a Roth account passes to an adult child who is 50 years old. The child would need to take the required minimum distribution based on the life expectancy table that says he or she should live for another 35 years. However, the account is gradually liquidated and withdrawals are free of federal income tax. The account continues to earn tax-free income over this period as well. The Roth operates similarly to a tax-free annuity.

Plan for possible new rules

A proposed rule pending in Congress would make some changes that extend traditional IRA rules to Roth IRAs. The changes would require Roth owners to start taking minimum distributions at age 70 ½. Another proposal would require that beneficiaries of an inherited IRA take out all funds within five years of the Roth owner's death. With pending reforms, consider the possible impact on your plans.

Placing IRA funds into a trust may be another way to stretch out the distributions based on the life expectancy of an heir.

A comprehensive estate plan takes into account IRAs and other accounts that pass via beneficiary designation. A skilled estate-planning attorney can help to create a plan that expresses your wishes and provides for your loved ones.

Article 2
Advance directives are an important part of estate planning in Connecticut

When you think about your estate plan, you think about your will or trust but probably little else. Although these items are no doubt important parts of an estate plan, they are not all that estate planning is about. A frequently overlooked aspect of estate planning is incapacity planning, specifically what kinds of medical treatment you would like to receive, should you ever become unable to express your wishes.

Fortunately in Connecticut, an advance directive is a legal means of addressing this contingency. This type of document allows you to provide directions and express your wishes regarding your medical treatment. Advance directives are typically not just one document, but a group of documents that includes a living will and the appointment of a healthcare representative.

Living Wills

Living wills are an important part of advance directives. This type of document allows you to state your wishes regarding the type of health care that you receive. If you ever develop an incurable terminal condition that will likely result in death or become permanently unconscious (e.g. a coma), your living will can also let your physician know whether you would like life support systems (e.g. respirators, CPR or feeding tubes) to keep you alive. Living wills go into effect only when you are unable to communicate your healthcare decisions; otherwise, you can continue to actively make your own decisions regarding medical treatment.

Healthcare Representatives

Because living wills cannot possibly cover every situation, it is also important to appoint a healthcare representative. This person is someone whom you authorize to make healthcare decisions on your behalf, including life-support decisions. Your representative bases his or her decisions on your wishes that you expressed in your living will or that you otherwise made known to him or her. If a situation arises that your living will does not address, your representative can make a decision on your behalf.

Under Connecticut law, you can choose almost anyone to be your healthcare representative. However, the law does not allow you to choose your physician; an operator, administrator or employee of your hospital or nursing home; or an administrator or employee of a government agency that is paying for your healthcare. Like living wills, your healthcare representative's powers do not go into effect until you are unable to communicate your healthcare decisions.

Speak to an attorney

Having an effective advance directive as part of your estate plan can help your family at a stressful time in life by removing all doubt concerning your healthcare wishes. If you have not yet executed an advance directive, contact an experienced estate planning attorney for assistance with this important aspect of estate planning.

Article 3
The importance of a careful post-divorce estate plan analysis

With all the chaos and tension of a divorce, it is easy for some things to slip by the wayside. The car might not get much-needed maintenance, the lawn could grow longer between cuts, and the laundry may pile up before the washing is done. Regardless, before, during and after a divorce, there are very important things that must be settled, including child custody, the division of marital property, the fair allocation of joint debts and spousal maintenance amounts (if applicable).

Something equally important, that many divorcing spouses forget about when there are other things vying for their immediate attention, is to keep an eye on the long-term financial and healthcare picture. Decisions made preceding and immediately following a divorce could have a huge impact on even the best laid estate plans. It may be necessary to revise or redraft important estate planning documents like wills, trusts or powers of attorney once the dust settles.

First things first

If you already have a settled estate plan, the time right before or during a divorce is not the best time to make changes. Changing beneficiaries, refinancing properties and removing your spouse's name from accounts are generally not permissible and may lead to serious adverse consequences in court. The best time to make these changes is after the divorce with the guidance of an experienced estate planning attorney.

For those without comprehensive estate plans, a divorce might have less of an impact on their long-term wishes. While it is advisable for everyone to have a proper estate plan, for some people it could actually work out better in the long run to begin working on it after their divorce. It could save them time and effort that would have been spent revising or reworking preexisting provisions.

Looking to the future post-divorce

It is important to note, however, that many of the nation's divorcees do already have settled estate plans. This is particularly true given the increased rates of so-called "gray divorce" (couples in their 50s and 60s are divorcing at much higher rates than have been seen in the past) and the higher divorce rates for subsequent marriages. For those people, it could involve much more effort to ensure that their final wishes are met. In fact, it could involve starting from scratch to remove all references of their former spouse from numerous estate plans or business succession planning documents.

Finding the right path for you

If you want to ensure that your last wishes are understood and have the best chance of being followed, you need an inclusive, comprehensive estate plan that can adapt to substantial changes in your life (like a divorce, remarriage or the death of a beneficiary, to name a few). To learn more about the types of documents that are best for your unique financial situation, speak with an experienced estate planning attorney in your area today.

Article 4
Update on federal estate laws and impact on Connecticut estates

The new federal estate tax rules for 2013 were passed during the fiscal cliff negotiations. This portion of the negotiations included an exclusion of up to $5.25 million in assets per person. This means each person can pass just over $5 million in assets to loved ones without paying taxes and each couple can exclude $10.5 million.

This new amount is much larger than originally anticipated. Without the change that came with the fiscal cliff negotiations, the exclusion would likely have capped at only one million dollars. In addition to increasing the exclusion amount for estate taxes, the gifting rules also increased from $13,000 in 2012 to $14,000 in 2013. This means individuals can gift up to $14,000 a year without tax penalties.

These new, much more generous amounts afford most individuals throughout the United States the opportunity to pass their assets to loved ones through their estate plans without paying excessive tax fees.

The importance of proper planning

Even with this exemption, it is important to plan how assets within an estate are passed. This includes everything within one's estate, such as property, bank accounts, stocks, life insurance plans and personal property like jewelry or automobiles. Without an estate plan, assets are passed in accordance with state law.

An estate plan can be composed of many different tools, including wills and trusts. Wills are legally binding documents that outline how a person's property is distributed and who should receive it.

A trust can be used in place of or to supplement a will. This tool manages how assets are distributed by putting different people in charge. There are many types of trusts that can offer various benefits. Often, trusts provide the creator with tax benefits and privacy.

Estate laws in Connecticut

In addition to determining the best structure for an estate plan based on federal rules, state rules must also be taken into consideration. In Connecticut, state gift and estate taxes apply in addition to federal taxes.

The gift tax applies to any gift of Connecticut real property, tangible personal property located within the state and intangible property managed by Connecticut residents. Tax is due once the gift exceeds $2 million. Estate taxes are calculated based on the amount of Connecticut taxable estate and are also required on estates exceeding $2 million.

Determining the tools to use within an estate plan based on federal and state laws can be difficult, particularly since estate laws often change. If you or a loved one is considering putting together an estate plan or would like an estate plan reviewed, contact an experienced Connecticut estate planning lawyer to discuss your situation and better ensure your wishes are met.

Article 5
The importance of estate planning through the years

Thinking about what happens after death, disability or other tragedies is usually the last thing that a person wants to do. If you do not plan for these events, however, you may leave your family or loved ones to decide such tough issues when they are in a stressful position. While estate planning is not the most appetizing thought, taking the time to form a cohesive plan can save your family and loved ones a lot of time in the future, regardless of your stage of life.

Your single years

If you are single and without dependents, basic estate planning can ease the burden on your parents if something happens to you. If you give them (or another person you trust) an advance healthcare directive, this will allow them to make your medical care decisions should you become disabled, incapacitated or unable to act for yourself.

For your financial affairs, you might consider setting up a joint bank account with people to whom you want to leave your assets, provided that you trust them. Should you die unexpectedly, this will allow the joint account holder to receive your property without having to go through the formalities of probate.


If you marry, many legal protections are automatic without having to do anything. Considering the laws of each state are different, it is always a good idea to put your wishes for your estate in writing. If you are unmarried, however, drafting a will, trust and advance healthcare directive is essential, as many state laws will not recognize the right of your significant other to make healthcare decisions on your behalf or inherit your estate.

Having children

If you have children, other estate planning modifications may be required. First, it is important to update your will to reflect your choice of guardian that will be responsible for your children, should something happen to you. Secondly, you might need to update your will to include your children as heirs to your estate.

Once your children grow into adulthood and can hold property, you need to consider how you would like to leave your estate to your children. Some parents prefer to leave their estates to the children as a lump sum, while others prefer to set up trusts to pay out certain amounts to their children at different points in their lives.

An attorney can help

As you enter each stage of life, it is important to consider how each stage will affect your end-of-life, healthcare and financial wishes. As the answer to this question relies heavily on your individual situation and state of residence, contact an experienced estate planning attorney. An attorney can review your circumstances, advise you on potential legal pitfalls and work to ensure that your wishes are carried out as you intended.

Article 6
Preparing for Probate Process Can Cut Costs

Many people first become familiar with probate courts after a death in the family. To save time and prevent strain, it is a good idea to learn the basics before an emergency and make decisions in advance that can cut probate costs.

Connecticut probate courts administer the transfer of a decedent's property, including collection of property, payment of any debts and distribution of property. The process is dictated by the decedent's will, if any, and Connecticut inheritance laws.

The Probate Process

If the decedent had a will, the court will first "probate the will," ensuring that it meets the legal requirements for a will. The portion of the decedent's property that does not automatically transfer to another party will then be distributed according to the will and state law. In some cases, one or more parties may contest the process.

Probate courts take on different roles depending on the facts of the case. Small estate probate, a simpler process, applies for estates below a certain asset value. An unsupervised or independent probate applies when assets are above this threshold, but can still minimize the court's role. Supervised probate, the most complex method, applies for contested estates and other complicated situations.

Probate Expenses

The probate process can be an expensive one, typically paid out of the estate's assets. Expenses can include court costs, attorney's fees and fees for personal representatives and other parties involved in valuing, collecting and distributing assets.

A few simple steps can help reduce these probate costs. Preparing an estate plan that meets the needs of the individual - whether fairly complex or fairly straightforward - can help to reduce the time and costs of probate by using non-probate vehicles such as trusts and beneficiary designations to transfer assets, for example. Investing time and energy into preparing a personal will and other estate planning documents like powers of attorney and advance directives, as well as carefully managing financial affairs, will help cut costs during the probate process.

The probate process unavoidably takes place during a difficult time for many families. Preparing and consulting with an experienced estate planning attorney in advance can help cut costs and make the process smoother.

Article 7
Tax Implications of Inheriting a Retirement Account

If you own retirement accounts, you should understand how they are taxed at your death. Recognizing potential tax consequences may influence how you proceed with your estate plan, especially if you own substantial assets.

Income in Respect of a Decedent

Not uncommonly, a person might earn money but not receive it, before he or she dies. This type of income is called "income in respect of a decedent," commonly referred to as IRD. U.S. tax law determines how IRD is taxed in a given situation.

Common examples of IRD include wages or bonuses earned but not yet paid, accrued vacation pay, interest and most retirement accounts.

Retirement accounts like individual retirement accounts (IRAs) and 401(k)s contain earned income that is not received until later withdrawals are made, so when a retirement account owner dies and the account passes either directly to a named beneficiary or through the estate, questions arise about taxing that IRD.

Beneficiaries and heirs of most types of retirement accounts are taxed at the time funds are withdrawn at ordinary income tax rates. So if you leave your 401(k) to your son, he will owe income tax on the funds when he removes money from the account.

Alternative tax arrangements may be available for surviving spouses who receive their spouses' retirement accounts.

The Estate Tax

The picture is more complicated if the person bequeathing the retirement account is someone of considerable means whose estate might be subject to the estate tax, a tax on a wealthy estate after the owner dies.

Congress and President Barack Obama agreed to a new estate tax rate for 2011 and 2012. An individual estate is exempt from federal tax up to a value of $5 million ($10 million for that of a married couple). Anything above that level is taxed at a 35 percent rate.

Interaction of IRD and the Estate Tax

With up to $5 million of an estate's value exempt, people who receive retirement accounts (as named beneficiaries or through estate inheritance) from wealthier decedents may wrongly assume that they will not owe taxes on the accounts' income. But the decedents' estate taxes and the beneficiaries' income taxes are two different things.

A deceased individual's retirement accounts are counted as part of his or her taxable estate, so for one worth over $5 million, the value of a retirement account increases the estate tax. Some wealthy retirement account holders who are concerned about this are considering alternatives like leaving the accounts to charity or converting them to Roth IRAs.

When a retirement account passes in an estate subject to estate tax, the recipient still owes income tax when he or she withdraws money. The account value is still taxed as part of the estate. To offset this double taxation, the new account owner can take a tax deduction corresponding roughly to that part of the estate tax attributable to that account's value.

This deduction is often overlooked by tax accountants and can be a windfall to the new account owner if he or she is not also an heir of the estate that was taxed on the account value.

Get Legal Guidance

This is only a preliminary look at the tax issues that arise when retirement accounts are inherited. Whether you are contemplating how you will bequeath your retirement accounts, or are receiving such an account under these circumstances, the advice of an experienced estate planning attorney who also has a firm understanding of tax matters is imperative.
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