How Do You Put An IRA Into A Living Trust?

I am often asked, “How do I put my IRA into my living trust?” Someone who has just created a trust usually asks this. The answer is: you don’t. The law is very clear that it must remain in the name of the person who earned it.

If the IRA can’t be owned by the trust, does that mean the IRA must go through probate? Not if you fill out the beneficiary form correctly. By naming individuals (such as your spouse and children) or in some cases your trust, as the beneficiary of your IRA, it will avoid probate.

In most cases, people usually name individuals as the beneficiaries of their IRA. This transfers the money upon your death in the most efficient manner. The beneficiary or beneficiaries just need a death certificate to claim the IRA.

For example, my wife is the primary beneficiary of my IRA and my sons are the contingent beneficiaries. This means when I pass away, my wife will inherit my money. If she passes before I do, my sons will inherit my IRA upon my death.

When would you name the trust as the beneficiary? If you have circumstances where the money needs to be controlled, you should name the trust as beneficiary. For example, if you have children who can’t manage money, your trust can provide a monthly income for your kids.


Anything with a beneficiary statement will pass to the beneficiaries listed. This includes life insurance, 401(k)s, annuities, and other types of accounts.

Five Lessons from an Auto Accident

My family and I were driving from Las Vegas to Bemidji, MN for our annual vacation. I have been going up to the lake almost every year of my life. We decided to drive because my wife and I wanted to bring up our bicycles. There are some really great bike paths in Minnesota.

Our journey took an unexpected turn in South Dakota when we had a blowout.  I lost control of the truck and we left the highway.  The noise was incredible as we rolled over at least twice and then it was replaced with silence.

I quickly checked the family. They seemed OK. Cuts and scrapes everywhere, but we were conscious and able to talk.

The next step was to call 911. Where was my phone? It was on the center console, but there was very little inside the truck now. My wife’s phone was gone. My younger son’s phone was gone.  Fortunately my older son has his phone in his pocket. I was able to reach 911.

My boys were able to climb out through the back window, as the truck’s shell was gone. Some people helped my wife out and others pried my door open. I noticed that I was missing one of my sandals. I wonder where it went.

We were quite a ways from the nearest town so emergency services took some time to reach us. By now, however we had a number of good Samaritans who stopped and were helping us. As they attended to my family, I surveyed my truck. It was clear that this truck was totaled. But it protected us.

People started collecting our stuff and put it into a pile. Surprisingly, they found the three phones that flew out of the truck. That was very comforting. My iPad was also found, but somehow it seemed to have lost its protective case.

I started notifying family via text message that 1: We are OK, 2: The truck blew a tire and we rolled over, and 3: We were going to the hospital.

When the EMTs arrived, one question they asked was what medications were we taking. I knew mine and could come up with a few of the medications the rest of my family took. Unfortunately I couldn’t think of them all. Why hadn’t I put them on my phone?

We were transported in three ambulances to Spearfish, SD. Our ride was about 45 minutes long. I was in the ambulance with my younger son and was glad to be able to hold his hand as they poked and prodded him.

At the hospital, we were evaluated. We each survived the wreck with a variety of problems:
Older son: Broken arm and foot, lacerations to his face, hand, and chest.
Wife: Broken vertebrae
Younger son: Laceration to scalp
Me: Little cut on foot.

I contacted my insurance company and started going through the process. This is where I found out I had made a mistake: I didn’t have rental reimbursement coverage on my cars. Not having it saved me a small amount of money. We have four cars for three drivers, so why would I need it? I never thought that I would have a problem in a small town in South Dakota.

When I was talking about all the personal items that were broken with the insurance company, I found out something interesting. They aren’t covered under my auto policy. Instead, they are covered under my homeowner’s policy. And of course, subject to another deductible.

The hospital suggested I contact the only car rental place in town before they closed. I called them up and was told, “I’m sorry, but I’m out of cars right now, except for one minivan.” Perfect! I need lots of space to carry everything we had in the truck.

I got the van and with my younger son, who had now been released, we went to the tow yard where my truck was. They helped me load up my bikes and all the stuff from the truck. It was tight, but we got everything in.

The hospital released my wife and son, but my wife now needed a back brace, which would have to be picked up in Rapid City, about an hour away. We would have to get it the next day as it was now late and the office was closed. Finding a hotel room was a struggle, because the 75th anniversary of the Sturgis Motorcycle rally was next week and almost everything was booked.

I was ready to head back home to Vegas. Everything was horrible. My family was injured and my truck was totaled. Driving home seemed logical to me. My wife, however, suggested we continue on. It would be quicker to drive to our cabin in Minnesota than home in Las Vegas. This made sense.

The next day, we got my wife’s brace and finished our trek to Bemidji, MN. It was great to be with my parents and my sister with her family.

I got a few take-aways from this adventure:
1. Keep your cell phone in your pocket while in the car.
2. Rental car reimbursement is important to have if you do any travelling.
3. Make sure your homeowner’s insurance is up to date.
4. If you don’t own your home, you should have renter’s insurance, because your auto policy won’t cover your own personal items
5. Have a list of your family’s medication stored on your phone or somewhere handy.

We are healing fine and will have a new truck soon.


A Missed Savings Opportunity

By now, most people know they need to have money saved for emergencies. It is important to have three to six months of expenses in case something happens. Your emergency fund is a short-term goal. People also know that they need to be saving for retirement. Most understand that Social Security just won’t cover the expenses. For people 50 and under, retirement is usually a long-term goal.

What about intermediate-term goals? An intermediate-term goal could be a new car, a house, or a wonderful vacation. It could be anywhere from 2 years to 10 years down the road.  How do you save for this?

A simple way to save for intermediate-term goals is through a monthly investment into a mutual fund. Anytime you have a little extra money lying around, put it into that fund. There is no IRS penalty for taking this money out, but there could be capital gains taxes. But the important thing is you have access to money when you need it! It can also be a backup to your emergency fund!  Keep in mind that mutual funds are not guaranteed and may have a sales charge. You can lose your money, so it is important to pick a fund that meets your needs.

A few summers ago, both air conditioners in my office quit working. I own my own office building, so this was my problem. I am the landlord! Since I live and work in Las Vegas, this problem was a BIG problem. These were old units and it just didn’t make sense to repair them, so I replaced them at a cost of $11,000. This was $11,000 I wasn’t expecting to spend. I paid for the new air conditioners out of my emergency fund, but that left the emergency fund uncomfortably low. So I took $11,000 out of my intermediate-term fund and replenished my emergency fund.

The next big purchase I made was a sports car. It was time for my midlife crisis and I wanted something fun to drive. This is where my intermediate term fund came in. In my case, it didn’t pay for the whole car, but I was able to pay it completely off within one year. If I didn’t have that intermediate term fund, I would have car payments for years.


What kind of 2 to 10 year goals do you have? Do you want to travel somewhere? Buy a car? Remodel your house? Ask us how we can help you fund an intermediate term goal.

2014 Last Chance Financial Planning Checklist!

Take 3 minutes and review 8 key items


The end of the year is an ideal time to examine your financial health and update your financial plans. This is a list of important things to review that might make a difference in your year-end review and plans for next year.

Three minutes is all it takes to make sure you are on the right track. Call us if you have any questions.

Click here for the list.

Dealing with the Death of a Loved One

Dealing with the death of a loved one can be very difficult, both emotionally and organizationally. One of the first things you need to do is consult with an attorney. Dealing with all the IRAs, accounts, and government agencies can wait a bit.

We have created these three checklists to help you in your time of need.

Surviving Spouse's Checklist
Inheritor's Checklist
Executor's Checklist

If you have questions, please don't hesitate to contact our office.

Inheriting Money

Inheriting unexpected sums of money can be helpful in tight situations, beneficial to retirement portfolios, and even allow charitable giving. Unfortunately, though, too many people are short sighted and spend the money frivolously, extinguishing the gift within a year or two.

When my clients inherit money, I coach them to keep the person who left the money in mind as they choose how to use it. The gift probably came from a loved one who worked hard to save the money—we should spend it in a way that honors that person. Sometimes people heed this advice; sometimes they don’t.
 
I had a client leave $200,000 to her two twenty-something year old granddaughters. We discussed how Grandma saved the money throughout her life and how their decisions about how to use it should honor her memory. Both girls seemed to understand the idea.

Granddaughter A looked at the money as an opportunity. A single mother limited with only a high school education, she chose to use some of the money for tuition to become a dental hygienist. Would Grandma approve of this? Oh, yes.

Granddaughter B also saw the money as an opportunity. She was starting a new job and wanted a new car. Would Grandma approve? Maybe... but then the car needed new chrome wheels... and then she took a trip to Mexico... and her boyfriend needed some money. Pretty soon, it was all gone. Would Grandma approve? No.

Inheriting money can be a blessing. If the inheritor is mature enough to spend the money wisely, it can be a huge benefit. If the inheritor is a spendthrift, the money can be gone in a short period of time with little to show for it... and little to remember the person who toiled to give the gift. Choose to honor those who care enough to share their life's earnings with you.

How involved in your finances are you...really?

How much do you know about your finances? Does your spouse handle everything while you stick your head in the sand? Or, is it the opposite, where you handle everything and your spouse doesn’t know what's going on? Maybe both of you collaborate on the plan and details?

In my highly unscientific study of clients, this is about what I see:
Husband does it all: 50%
Wife does it all: 20%
Both work together: 30%

This estimate suggests one spouse has all the household finance knowledge in about 70% of cases. This isn’t good news. Why? Because in 99.9% of households, one spouse pre-deceases the other. If the one who knows the details goes first, the remaining spouse could be in for a huge challenge.

Some time ago, a couple came into my office and told me the husband was diagnosed with terminal cancer. He had a few years to live. This couple was in the first group—the husband handled everything. Even though this was horrible news, we took advantage of his remaining time and made sure she was up-to-date on their investment, bills, and income details. When he passed away, one thing she didn’t have to worry about was the financial side of the household.

Most of the time, unfortunately, the uninformed spouse doesn’t get the opportunity that this couple received. The surviving spouse may be dependent on a child or friend to help them understand.

So, how do you get more informed about your household finances? Ask questions. Get involved. Help pay bills. Attend meetings with your financial advisor. Ask questions of your financial advisor.



What if your spouse isn’t interested in your household finances? Get organized now! Call our office for a copy of our organizer brochure to guide you through listing all the information your spouse may need to deal with. Also, bring your spouse to meetings with your financial advisor and make sure your spouse is comfortable with your advisor.
 
I remember another couple where the husband handled most household financial duties. Unfortunately, he passed away leaving the duties to her. She didn’t attend many of the portfolio review meetings so didn’t feel as comfortable with us as her husband had. I watched her move all of their money into high-commission products sold to her by the son of a friend. It was an unfortunate situation.


I learned something from that second couple. Ever since then, I try hard to meet with both spouses. It is very important for both spouses to have a basic understanding of their accounts, planning processes, and reasoning behind the personal choices affecting savings. Call us today to make an appointment for you and your spouse, or to order our organizer to help put your finances in order.