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Think Before You Liquidate That IRA

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By Shannon Laymon-Pecoraro, Esq.

One of the biggest problems faced in estate and trust administration is the liquidation of qualified assets, such as a 401k or IRA. Often, clients forget that the funds in the qualified account have not yet been taxed, and as a result, when withdrawn from the account, the full withdrawal will be taxed as ordinary income.

Estates and trusts have a condensed tax structure, and as a result, it only takes $12,500 worth of income for an estate or trust to be taxed at the maximum marginal tax bracket (37% in 2018). To put things into perspective, an individual would need to earn over $500,000 to hit the same tax bracket. As a result, planning the timing of distributions from qualified accounts becomes an important.

The rules for inherited account vary greatly from those of a traditional account holder. With the exception of spousal rollovers, distributions from qualified accounts, which will become an inherited IRA, must begin immediately and must generally be taken over the lifetime expectancy of the beneficiary (in the event of multiple beneficiaries, it would be the life expectance of the oldest beneficiary) or within five (5) years after the decedent’s death. These rules will vary based on circumstances set by the Internal Revenue Service.

Beneficiaries are often anxious to collect their inheritance, and as a result, the fiduciary often liquidates a majority of the assets with the goal of closing an estate as quick as possible.  This is often a costly mistake. Working with a professional, the fiduciary of the estate or trust can develop a distribution schedule that complies with the rules set by the Internal Revenue Service and will push the income out to the beneficiary(ies) so as to minimize the overall tax effect.

The attorneys at the Hook Law Center are well versed in estate and trust taxation, but the addition of a CPA has added comprehensive tax service to the firm. Not only do we prepare decedent and estate returns, but we can address tax issues associated with qualified accounts as we develop an estate plan, and work with fiduciaries to plan distributions from Inherited IRAs.

Kit KatAsk Kit Kat – Don’t Feed the Horses

Hook Law Center: Kit Kat, what can you tell us about 1) the St. Paul raccoon who was climbing the UBS building and 2) the habits of mammals that are becoming increasingly nocturnal?

Kit Kat: Yes, it’s very true, and there can be life and death consequences for the wild horses if this is not taken seriously. Signs in the area say “Apples and carrots ‘kill’ wild horses.” It’s not an exaggeration. While most horses can tolerate these delicious treats, the wild horses that were left by the Spanish in 16th-17th centuries cannot. Jo Langone, chief operating officer of the Corolla Wild Horse Fund, says their normal food is the grasses in the area. If they eat other things, it can cause colic or even death. Also, it is advisable to keep one’s distance from the wild horses. Ms. Langone said to think of them as wild—like a bear. Stallions can suddenly begin to fight one another, or sometimes the herd gets spooked and begins to stampede, quite unaware of their surroundings.

If you live in that area and want to help, you can put a sign in your yard saying “Don’t feed the horses!” They are available at the Corolla Wild Horse Fund museum and gift shop in Corolla. Other great citizens have helped by financing a billboard on their own property on US 158. Karen and Mac Quidley gave the space. R.O Givens Signs paid for installation, and Terry Douglas, a graphic artist from Richmond, did the design for free. What a wonderful community effort to protect the beautiful wild horses of the Outer Banks! (Jeff Hampton, “In NC, billboard pulls no punches on safety of horses,” The Virginian-Pilot, June 29, 2018, pg.3)

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Hook Law Center encourages you to share this newsletter with anyone who is interested in issues pertaining to the elderly, the disabled and their advocates. The information in this newsletter may be copied and distributed, without charge and without permission, but with appropriate citation to Hook Law Center, P.C. If you are interested in a free subscription to the Hook Law Center News, then please telephone us at 757-399-7506, e-mail us at mail@hooklawcenter.com or fax us at 757-397-1267.

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Posted on Monday, July 9th, 2018. Filed under Senior Law News.
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