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Sometimes You Need a Customized Beneficiary Designation Form for Your IRA

Occasionally in estate planning, the need for a customized beneficiary designation form arises.

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Most people are aware that their IRAs, life insurance, and certain other accounts they own are payable to their designated beneficiary or beneficiaries - the provisions in their will or living trust have nothing to do with where their IRA goes when they die.

And with many people having the majority of their financial wealth in their individual retirement account, the beneficiary designation language becomes just as important, if not more important, than the customized language of their last will and testament or their living trust.

For many, the traditional beneficiary designation form is sufficient. For example, in many traditional families, the IRA owner will name his or her spouse as the primary beneficiary, and will name the children as the contingent beneficiaries.

However, in some circumstances, it becomes necessary to name a trust as a beneficiary of an IRA. Having children who cannot handle a lump of money, or having a blended family situation, are common examples where creating and naming a trust as a beneficiary may be important. Note that Traditional IRA owners who name trusts as beneficiaries may be triggering adverse income tax consequences to the beneficiaries of the trust.

However, in some instances, neither naming individual beneficiaries, nor naming a trust as a beneficiary, accomplishes the estate planning objectives of the IRA owner. It becomes necessary that a custom beneficiary designation form is drafted and submitted to the financial institution where the IRA is held.

There are many instances where a custom beneficiary designation may be necessary. Let's say, for example, that Dad wants one of his three children to get a minimum of $500,000 from his IRA. At the time that Dad is completing his designated beneficiary form, his IRA value is $1,500,000. But Dad knows that the value of his IRA will change before he dies. Dad may need his estate attorney to draft a customized beneficiary designation form that provides that if, at the time Dad dies, Dad's IRA exceeds $1.5 million, then the three children will divide the IRA equally. However, the customized beneficiary designation will further provide that if the value of Dad's IRA is less than $1.5 million when Dad dies, then Child #1 will get the first $500,000, and the other two children will divide equally the remainder.

Since the IRA, life insurance policy, or annuity may be the largest financial asset an individual owns, it becomes critical that the proper attention be given to the beneficiary designation, particularly if the circumstances surrounding the estate are unique or complex.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

Phone: (225) 329-2450

Estate Planning Trends

Over the last couple of decades, there has been a shift in the areas that consumers address when they engage an estate planning attorney to get and keep their estate legal program in order.

For prospective law firm clients who want to schedule a free 15 minute initial phone call with Paul Rabalais, go to:

While these are just trends - they don't apply to every family and every set of circumstances. For example, many families don't have a federal estate tax concern, but they also don't ever want or intend to qualify for Long Term Care Medicaid. Some estate planning issues are evergreen, they will be addressed regardless of the political landscape: issues like providing for minor children, providing for disable children, and providing for adults who cannot handle a lump sum inheritance the right way.

But the following are general shifts we see:

(1) Estate tax planning vs. Medicaid Eligibility planning. Few families these days need to worry about the federal estate tax. The average middle class family these days does worry about losing their home and life savings if they get sick and need long term care.

(2) The ILIT vs. the IIOT. Gone are the days where parents created an irrevocable life insurance trust in an attempt to use life insurance proceeds to pay estate tax. Here are the days where people transfer assets to a particular type of trust that enables them to retain elements of control but not lose the assets if they get sick.

(3) The $15,000 gift tax annual exclusion. Used to be, everyone and their brother would make gifts annually of $15,000 in an attempt to reduce the assets ultimately subject to the federal estate tax. Now, those gifts are useless, particularly if they are being made with some future Medicaid eligibility goal in mind.

(4) Avoid Lumping Assets in Surviving Spouse's Estate vs. The Double Step Up. Now, we want the assets of the first spouse to die to be "lumped" into the suriviving spouse's estate, for estate tax purposes. Assets in the estate of the surviving spouse get a step-up in capital gains tax when the surviving spouse dies. This "lumping" used to be a "no-no" because it cause the surviving spouse's estate to exceed the $600,000 estate tax exemption (which is now $11.4 million).

(5) Providing for a Child Predeceasing vs. Providing for a Child Divorcing. Many people now express a very clear desire that they do not want their ex-daughter-in-law, or their ex-son-in-law, ever controlling a penny of their money.

(6) Old School Will vs. New School Trust. Lawyers were taught in law school that wills and probate are the way to go. Plus, guiding a family through the intricacies and obstacles of the court-supervised probate (we call it "Succession" in Louisiana) can be easy and highly profitable work. Now, with so much information on the internet, consumers have now wised up to the concept that an estate can be set up to eliminate the court and attorney involvement of probate.

(7) Old School Probate vs. New School Trust Administration. Old School - your assets are frozen when you die, and your survivors hire lawyers to sort through the legal maze. New School - name a trusted family member as the Successor Trustee (or Co-Trustees) of your funded trust, and keep 100% of your estate in the family.

(8) Custom Will or Trust Provisions vs. Custom Beneficiary Designations. Now, many people have the majority of their financial wealth in their Individual Retirement Account (IRA). Your will or trust has nothing to do with directing where your retirement assets go when you die. With unique family circumstances, many families overlook the need to have their estate lawyers customize not only their traditional wills and trusts, but also their beneficiary designations on retirement accounts, annuities, and life insurance.

(9) Traditional vs. Blended Family. With people living longer and getting married more, the blended family estate plan can get tricky. Protections need to be in place both for the surviving spouse AND the children or heirs of the first spouse to die.

BONUS: For estate planning professionals only: Old School - the QTIP election. New School - the Portability election. This has to do with proper estate tax reporting within nine months after the first spouse dies, EVEN IF the first spouse to die's estate does not exceed the applicable estate tax exemption amount.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

Phone: (225) 329-2450

Pros and Cons of Leaving Everything to Your Spouse

When married couples engage in estate planning, one of the questions they often are required to answer is, "If I die before my spouse, do I want to leave complete ownership and control of my estate to my spouse?" Or, "Do I want to leave my estate to my spouse in a way that my children (or other heirs) are protected?"

Leaving all of your assets to your spouse is pretty easy to understand - when you die, your spouse owns everything. Maybe you are thinking that it is ok to leave everything to your spouse because you are confident that when your spouse dies, your spouse will leave it all to your kids. Or maybe you like the thought of leaving your estate to your spouse because your descendants circumstances may change after you die and you want your spouse to be able to leave the estate to your descendants the right way.

However, if you leave your estate to your spouse, your spouse "could" leave your estate to people other than your children, like your spouse's next spouse!

Some people want to leave their estate to their spouse in a way that their children or heirs are protected. The two common ways to do this are (1) in trust; and (2) via the Louisiana usufruct.

Leaving your estate to your spouse may be the best overall tax outcome, but it used to be the worst. In the old days, it did not make sense to leave your estate to your spouse because when you lumped your estate on top of your spouse's estate, it caused the spouse's estate to be subject to a 50% or more federal estate tax upon the death of the surviving spouse. But now, with an $11.4 million estate tax inclusion, and with portability (making it easier for married couples to exempt $22.8 million from the estate tax), rarely are couples penalized for leaving everything to each other.

The tax benefit that often results from leaving your estate to your spouse is that your heirs will benefit from a "double step up" in basis, for capital gains tax purposes. In community property states (like Louisiana) all community property gets a new stepped-up basis when the first spouse dies. And when you leave all of your assets to your spouse, all of the assets will get another step-up in basis when your spouse later dies. This can save considerable capital gains tax when assets are later sold, particularly if there is appreciation that occurs from the date of death of the first spouse to the date of death of the surviving spouse.

In addition, if you live in Louisiana, you are prohibited from leaving your entire estate to your spouse if you have forced heirs. Forced heirs are children of your that, at the time of your death, are 23 years of age or younger, or, are of any age but incapacitated.

Leaving assets to the surviving spouse is common for traditional families - one marriage and all children are from the one marriage. And if you really want to make it as simple as possible on your spouse when you pass away, consider establishing a revocable living trust and titling the appropriate assets in your trust. Assets in your living trust don't go through the court-supervised probate/Succession procedure, so having your assets in your living trust will prevent your spouse from having to hire lawyers and go through the courts just to get ownership of your assets after you die.

Other factors that are typically discussed when married couples engage in estate planning legal services include: who makes your decisions when you are incapable; protecting assets from long term care costs; and how will assets be managed and disbursed after both spouses pass away. These are all important components of any estate planning legal program.

Note also that if you have no legal plans in place, Louisiana laws won't do your spouse any favors. These laws will favor your descendants much more than your spouse.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

Phone: (225) 329-2450

What Are Options That People Consider When Attempting To Protect Their Estate From Nursing Home Poverty?

I've talked to many Louisiana families about things that they had done in an effort to protect their money from all being sucked up by the nursing home costs which can exceed $100,000 annually. Lots of mistakes being made here by people who don't truly understand the intricacies of the Louisiana Long Term Care Medicaid law and regulations. While you won't get all the answers in this post, you'll learn what some of the common mistakes are. are options that just don't work.

Do Nothing

Probably the worst thing that you can do if you want to protect your estate from being eaten up to nursing home costs is to ignore the problem.

Example. Nelda had her home worth $150,000 (no mortgage). She also owned accounts totaling $450,000 in value. Nelda procrastinated taking action to protect her estate from skilled care cost. A stroke caused Nelda to have to reside in a nursing facility. Nelda was forced to spend all of her $450,000 (until there was less than $2,000 remaining) before qualifying for Medicaid. When Nelda died, Medicaid pursued its Estate Recovery rights, forcing Nelda’s home to be paid to reimburse Medicaid for what it had spent on her nursing home care.

The people who protect their estate from nursing home costs typically are those who are proactively seek out the right information, at the right time, and work with the right people, and get it right the first time. Others risk losing everything they own.

Give It Away

Some people choose to give their assets away so that the assets will not be in their name when they get sick and apply for Medicaid.

People generally utilize one of two different gifting strategies when they attempt to help their financial situation by giving their assets away:

1.      Give $14,000 Away. Gift and estate tax laws provide that you can donate $14,000 to as many people as you want to without gift and estate tax consequences. Many people mistakenly interpret this as an income tax rule. Many mistakenly believe that either the donor or the recipient must pay income tax on gifts that exceed $14,000. Example: Dad gives Daughter $114,000. No one owes any income tax, but since the gift exceeded $14,000 (by $100,000) Dad has used up $100,000 of his $5.450,000 estate tax exemption. No one owes tax, but when Dad dies, he can “only” leave $5,350,000 free of the 40% estate tax. The problem, however, with making $14,000 annual gifts, from a Medicaid Planning standpoint, is that assets are not protected until five years after they are given away. So, giving it away in $14,000 increments does little good.

2.      Give Everything Away. Some people think that they will beat the government by putting all of their assets in their kids’ names. But his could be really dumb move for tax purposes. Example: Mom and Dad own a home that they bought 35 years ago for $30,000. Today, the home is worth $240,000. If Mom and Dad donate the home to the kids during Mom and Dad’s lifetime, then the kids will get Mom and Dad’s $30,000 “carry-over” capital gains tax basis. When the kids later sell the home, there could be an extra $60,000 or so of capital gains tax due. Plus, when Mom and Dad donate their home to their kids, Mom and Dad will lose their property tax homestead exemption. In addition, many parents that I talk to don’t like to give up the control over their assets that they give up when they put everything in their children’s names. Serious problems could result if the children die, go bankrupt, have IRS issues, get divorced, have spouses with bad spending habits, or if they can’t pay their debts. Don’t turn over everything you own to your kids.

Rely on Medicare To Pay Nursing Home Costs

While Medicare will pay for some of the nursing home costs for the first 100 days of rehabilitation if you had a prior hospital stay of at least three days, you must pay 100% of the remaining costs of the skilled nursing facility (unless you qualify for Medicaid).

Have a Last Will and Testament and Power of Attorney

If you think that somehow your last will and testament will help you avoid losing your home and life savings to nursing home poverty, then think again. A last will and testament (“Last Will”) names your executor who will administer the court proceeding when you die, and your Last Will tells a judge who to make sure remaining assets get disbursed to at the end of the court proceeding (“Probate”). But a Last Will does nothing to protect your estate from long term care costs.

Example. Mom had a Last Will prepared naming her daughter, Sue, as the executor. In her Last Will, Mom left her estate to her two children, Sue and Richard. Mom felt like she did all she needed to do to “protect her estate for her children.” Eight years after writing her Will, Mom went into a nursing home. Mom was forced to spend her entire life savings on her nursing home care. When Mom died, Sue, as the executor of Mom’s probate, was forced to sell Mom’s home on behalf of the estate and give all of the proceeds of the sale to Medicaid – leaving the children with nothing.

A common Last Will technique can get you in bigger trouble. Many married couples write Last Wills. Often, the Wills are structured so that the first spouse to die leaves all of his or her assets to the surviving spouse. Then, because all of the assets were lumped into the surviving spouse’s estate, the surviving spouse must deplete the entire family estate before getting any help from Medicaid. So, the “I Love You” Will leaving everything to your spouse can be a disaster.

Put Your Money In a Safe Deposit Box – Or In A Hole You Dig In The Back Yard

One of the questions on a Medicaid application asks where you have a safe deposit box and what is in the box. Documents of Proof that Medicaid says it may need from you includes, “A list of what is inside any safe-deposit box.  This must be a written statement by a bank employee or a sworn statement from someone who looked inside.”

Failing to disclose the necessary information on a Medicaid application is Medicaid Fraud. It’s easier to plan ahead, get the right information to enable you to protect your estate, and then take that action.

Some people mistakenly believe that if they “put their child’s name on their bank account,” then the bank account somehow is no longer a Countable Resource for Medicaid eligibility purposes. Wrong.