Understanding Living Trusts: Your Quick Guide To How They Work

Living trusts are an estate planning option that few individuals make use of. Fundamentally, a living trust acts in much the same manner that a will does. A revocable living trust, however, offers some options that a will does not.

In the most basic possible terms, a living trust is a legal container for property that is created by a trust agreement. The trust takes the title of various properties and assets. Control of those assets is granted to a trustee.

In the majority of cases, the trustee is the same individual that is funding the trust. This begs the most obvious question: why?

Understanding the Basics of Living Trusts

Why would someone create a legal document to give themselves control over property they already have control over?

The one major benefit of a living trust is that it names beneficiaries of your assets upon your death and can avoid the court system during distribution. The key factor that distinguishes it from a will is that it is designed to avoid probate.

The Benefits of Establishing a Living Trust

Why would you want to establish a living trust?

The Disadvantages of Establishing a Living Trust

Aside from the fact that living trusts cost money to set up, there are a number of things to bear in mind when establishing a living trust. Living trusts do not always avoid the problems they are designed to avoid, and there are legal complexities to the process that are not always obvious.

Transferring Assets to a Trust Means that You No Longer Own Them

It’s important to keep in mind that when a property or asset is transferred to a trust, the asset becomes property of the trust. For instance, if you were to transfer a car to a living trust, you might find it difficult to insure the car as a result, since the car is no longer in your name. This, in fact, makes it difficult to transfer certain kinds of assets into the trust.
Only when the titles of these assets are transferred to the trust do they avoid the probate process.

Living Trusts are Not Tax Havens

There are some people that are under the impression that living trusts allow assets to transfer tax-free. That isn’t the case. Assets stored in a living trust are not granted any kind of special tax consideration, either while the grantor is alive, or after the grantor has passed.

In addition, all assets in a living trust are considered “countable” for the purposes of qualifying for entitlements such a Social Security or Medicare.

Living Trusts are Not Creditor Havens

Assets that are placed in a trust are still subject to claims brought forth by creditors. In other words, living trusts don’t “shield” your assets from claims against the estate, either while you’re alive or after you’ve passed.

When Does a Living Trust Make Sense?

Not everyone will need a living trust. There are, however, instances in which having one makes a great deal of sense. Read on ...

Living Trusts can Avoid Probate Messes

Since probate is governed by state law, properties held across multiple states can be subject to any number of jurisdictional restrictions depending on where they’re held. While going through probate is not necessarily the end of the world, going through probate in multiple states can get relatively messy. In addition, there are some states that have particularly complicated probate laws. Properties held in California and Maryland are solid candidates for a living trust.

Florida is another candidate for a living trust. There are restrictions on who can serve as a personal representative for a descendant. With a living trust there, is no such complication.

Living Trusts Offer More Privacy

The one major advantage of avoiding probate is that court proceedings are a matter of public record. For those whom privacy is a major consideration, living trusts can be an ideal way to distribute your assets after you pass.

The Bottom Line

Living trusts are a legal vehicle that individuals use to pass their assets. They function like a will but have the advantage of avoiding probate when they’re drafted properly and when all assets have been transferred properly. For most people, a well drafted will is about all they’ll need.

For those with a lot of assets or assets spread across multiple states, a revocable living trust is a powerful legal tool that can streamline the process of distributing assets after death. Trusts have the advantage of being more difficult to contest. They are also easier to amend than wills. Update your living trust when it's needed and you can rest easy, knowing you're handling an important aspect of your asset protection strategy.

IRA Rollovers: Yes, Rolling Over Your 401(k) Into An IRA Is Smart!

Changing careers? Deciding what to do with retirement funds is going to be a primary concern. While there are a number of options available, many choose to roll these funds over into an Individual Retirement Account.

There are a number of good reasons for this.

What Exactly is a Rollover IRA?

IRA Rollovers can be deposited into an IRA from another retirement fund, for instance: a 401(k). Those who don’t already have an IRA can open one for the express purpose of rolling over funds from a previous employer’s retirement plan. Those who already have an IRA can simply roll over the money into the existing IRA.

The Benefits of an IRA Rollover

Many folks are content to let their 401(k) plans accrue money over time, and there’s nothing wrong with that option. Why would you fix something that isn’t broke? Well in this instance, you would not be fixing something that is broken so much as replacing it with something better.

What do we mean?

Those who have just switched jobs have a short list of options concerning their retirement funds. These include:

Cashing the funds out immediately is not advisable. While leaving the money in the original 401(k) or rolling it over into the new one aren’t bad options, there are a number of reasons why an IRA rollover is the best option on the list.

Rollovers Can Preserve Tax-Favored Status

Those who choose to cash out their accounts early are not only subject to a 10% early withdrawal penalty if they are under the age of 59 ½ but will also need to pay income tax on the balance.

By contrast, rollovers can preserve tax-favored status so long as they’re transferred from one trustee to another. In other words, the IRA will continue to grow tax-deferred until a retiree begins collecting on their investment.

IRA Rollovers Can Increase Investment Options

Some folks choose to leave the funds in their old plan alone or roll the funds over into a new employer-offered plan. There’s nothing wrong with this per se, but rolling the money over into an IRA can increase the number of options that are available to you. For instance, IRAs typically offer a broader range of investments. 401(k) plans, on the other hand, may be limited to a handful of mutual funds.

This advantage will contribute to a better investment strategy and can prove more lucrative in the long run.

IRAs Have Lower Fees

Generally speaking, employer-sponsored 401(k) plans typically have higher administrative fees than IRAs.

An IRA Centralizes Control of Your Retirement Monies

There might some good reasons to keep your old 401(k) open, particularly if you’re satisfied with the returns. On the other hand, it’s much more convenient to have one centralized location from which to manage all of your retirement funds. IRAs are easy to figure out and significantly reduce the complexity of managing separate accounts.
From one centralized location you can access:

Brokers Will Compete For Your Business

Brokerage firms are more than willing to offer incentives to bring your business to them. In some instances, this could even mean free cash. In other instances, you may be entitled to free trades. It’s certainly something to look into as you figure out how you want to invest your retirement money.

401(k) Plans are Subject to Rules an Individual Company Establishes

Every company has a great deal of wiggle room when it comes to setting up a 401(k) plan for their employees. IRAs, on the other hand, are subject to a centralized set of rules established by the IRS.

This is better for two reasons:

The Rollover Itself is Free

While there are other costs to consider, rolling over a 401(k) into an IRA is free. There will be transaction costs for individual investments and other costs to bear in mind, but setting up and rolling over the money is a relatively pain-free process.

The Bottom Line

The advantages of rolling over your 401(k) into an IRA far exceed the risks. It makes sense not because the other options are bad, but simply because IRAs are better for some. With more investment options to choose from, lower administrative costs associated with the account, a simple centralized location from which to access your retirement investments, and more transparency regarding how the fund operates, IRAs make the most sense  for your retirement plan.

Self Directed IRA Business Trust FAQs

Investing in an Individual Retirement Account (IRA) is a great way to start saving for your golden years. Whether you are interested in a Self-Directed IRA (SDIRA), 401(K), or other IRA plan, investment professionals at Royal Legal Solutions can help. Below is a list of the most frequently asked questions we receive from people looking to learn more about investing in their future.

General SDIRA Questions

While SDIRAs have been around for decades, they are not the most well-known means of saving for your retirement. As a firm that specializes in SDIRAs, Royal Legal Solutions is here to help you understand how these types of investment accounts work.

How is a SDIRA different from other retirement plan options?

IRAs, 401(K)s, and SDIRAs are all used to earmark funds you intend to use during your retirement. At their core, each is a vehicle that is used to promote savings and investments that become available to your upon retirement. The majority of these accounts allow for unhindered growth as the invested funds and their earnings are generally tax-deferred. Each allows for investments in publicly traded securities and derivations of them, including stocks, bonds and mutual funds. However, that is where a SDIRA distinguishes itself. SDIRAs allow you to invest in much more than that. These alternative assets, like real-estate, precious metals, and renewable energy, allow for you to have a much more diverse portfolio. IRAs and 401(K)s are typically held at banks, insurance companies, or general investment firms and managed primarily by investment professionals.

Investment firms that offer custodial management of your SDIRA, on the other hand, tend to specialize specifically in these types of accounts. Also unlike IRA and 401(K) accounts, you control every aspect of your SDIRA. The investment professionals who retain custodial-only access are simply there to ensure you do not unintentionally break rules set out by the IRS.

What is the typical timeline to open a SDIRA or 401(K)?

At Royal Legal Solutions, opening a new SDIRA or 401(K) is easy. On average, the account process can take between two days and three weeks. The main drivers that dictate this timeline are how you plan to fund your account and, if you have a current retirement plan, who the custodian is. Our investment professionals strive to make this process as easy and quick as possible. We know every day it takes to set up your account is another missed opportunity to grow your finances.

Does having a SDIRA make me more likely to be audited by the IRS?

Currently, the IRS cannot legally target taxpayers for audits based on the type of investment accounts they have. In 2015, the IRS began asking for additional information on IRA reports in the form of Form 5498. However, because not all investors digitally submit their reports and the IRS cannot presently support manual submissions, targeting SDIRA owners would be considered a discriminatory practice. While this may change in the future, a SDIRA will not trigger an audit.

My current CPA believes there is an incurred 39% tax if I switch to a SDIRA and has warned against doing so. Is this true?

Your CPA is likely not as familiar with the SDIRA process as a specialized firm would be. They may also be under the assumption that you are attempting to take an early distribution from your current IRA in order to fund your SDIRA. This is untrue. Opening a SDIRA is typically considered a custodian-to-custodian transfer of your current IRA. Because of this, the startup process and investments are non-reportable and non-taxable.

Funding My IRA

IRAs, the tax regulations that govern them and investment complexities can give anyone a headache. Our professionals are here to help make sure your IRA experience runs smoothly.

Can I claim all of my IRA contributions?

You can contribute to your IRA account. However, if you have an IRA account through your employer, you may not be able to deduct the total of your traditional IRA contributions due to IRS threshold constraints. The investment professionals at Royal Legal Solutions can work with you to help determine the best way to save you money while investing in your future.

How can I transfer funds into my new account?

There are two ways to roll funding between your accounts. For a non-taxable and non-reportable option, you can elect to make a direct custodian-to-custodian transfer from your old account to your new one. You may also opt for a distribution-and-rollover transfer. These events are reportable, but are not taxable when the old funds are rolled into a new account within 60 days of distribution from the previous custodian.

How long does a transfer take?

For the custodian-to-custodian option, a transfer may take between seven and twenty days. If you are considering a distribution-and-rollover method, it only takes a couple business days for your bank to transfer the distribution to your new IRA.

How do 401(K) rollovers works?

We will provide you with the necessary information you need to initiate a 401(K) rollover. As the plan owner, you must provide this information to your plan administrator to start the rollover process.

What is the difference between an indirect and direct rollover?

Indirect rollovers occur when the funds from your current plan are distributed directly to you. A 20% tax withholding fee will be taken from your total by your administrator. Once you deposit your distribution, you have up to 60 days to invest any percentage of those funds into your new IRA or 401(K) without an additional penalty tax. Direct rollovers bypass these taxes. With these, your current administrator issues your funds directly to your new plan.

Managing My IRA

Whether you are new to investing or just want expert assistance, Royal Legal Solutions keep our costs affordable to ensure your investment funds go where they are supposed to: towards your future.

What rules apply to an LLC I invest in?

If your investments include owning a percentage of an LLC, all transaction must meet IRA guidelines. When LLC returns are distributed to investors, including you,  they need to be issued at the same time and pro-rata.

How much can I contribute annually to my IRA?

Contributions to your IRA and 401(K) are subjected to annual limits as dictated by the IRS. For IRAs, if you are under the age of 50, your annual maximum contribution is $5,500. If you are 50 or older, your annual contribution is capped at $6,500. Simplified Employee Pension IRAs are different and have an annual limit of $54,000. The 2018 solo 401(K) contribution limit is $55,000.

What is a RMD?

RMD, or Required Minimum Distribution, is the lowest amount of money you are obligatory to withdraw from your retirement account once you reach the age of 70.5. (Roth IRAs differ. They do not require any withdrawals until after the owner has died.) Your RMD is calculated by the IRS-published life expectancy factor and your balance as of 31 December of the previous year. RMDs are calculated on an annual basis with the first one starting on 01 April once you turn 70.5. You are required to withdraw your annual RMD amount by 31 December every year.

Do I pay taxes on RMDs?

Yes, the account owner is taxed at their income tax rate when they withdrawal their RMD.

What if I fail to withdraw my RMD that year?

Regardless of whether the IRA is yours or you inherited it, failure to withdraw the designated RMD by 31 December will result in a 50% penalty fee.

Should I Invest In Commodities?

Commodities are everyday essentials, but did you know they were also investment opportunities? From the fuel in your car to the steak on your dinner table, commodities are raw materials. If you want to diversify your investment portfolio, commodities can surely take care of that. But is it wise to actually invest in them? Let’s take a look.

Types of Commodities

Tradable commodities fall into one of four categories.

Precious metals, like gold, silver, copper and platinum, are among the most popular kinds of commodity investments. Energy, which includes things like crude oil, natural gas, and gasoline, as also popular investment choices. Livestock and meat are considered commodities too. Live cattle and pork bellies are examples of these. If meats aren’t your thing, you can invest in agriculture instead. Corn, soybeans, rice, cocoa, coffee and cotton are all possible agricultural investments. When learning these markets, get professional advice so you can make the best commodity decisions for your portfolio (for example, by getting a Self-Directed IRA for Precious Metals).

Types of Commodity Investments

You can invest in commodities in a several different ways. For some, buying the physical raw material, like gold bullions, is an easy way to invest. These items can be securely stored in an approved depository. For more experienced investors, using futures contracts or exchange-traded funds (ETFs) are ideal. After all, purchasing 300 gallons of crude oil isn’t exactly easy to store in your safe deposit box. A futures contract is an agreement to purchase or sell a specific quantity of an item at a pre-defined price at a designated time in the future. Hiring a professional to help manage your futures contract may be your best bet if you are a relatively new investor. Investing in commodity stock is also possible. Gold mining and grain stocks are popular choices today. You can also invest in a company that deals in commodities, like a heavy-equipment manufacturer who sells tractors to farmers.

Why Invest in a Commodity?

Commodities are often used to hedge your investment funds during periods of instability, inflation, or devaluation. They should not be your primary investment, but they certainly do help to enhance your portfolio. Commodity investments typically move in opposition of stocks. Stocks can plummet when economic instabilities arise. But, in times of economic hardship, while money may be sparse, everyone still needs food and energy. Long-term investments require significant amounts of money, time, and research. These are best left to professionals.

Royal Legal Solutions has years of experience with commodities and trade trends. Our investment professionals can help you with your investment decisions, navigating the world we live in through stocks, trades and more. However, for all of the effort put into them, long-term investments tend to work well with a patient buy-and-hold approach.

Because large-scale commodity investments use economies of scale and predetermined prices, even small shifts in values can have large impacts. Because of this, experts typically prefer investing in commodity stocks over the actual goods themselves.

Hedge Your Bets with Commodities

Investing in commodities can help protect your funds. Commodities are personal investments that take a bit of legwork to thoroughly understand. Whether you invest in a single commodity, a particular sector of commodities, or an array of different sectors – select options that make sense to you. Hiring a professional may be the best way to invest in commodities, whether you are buying the goods themselves of purchasing stocks.

The Benefits Of Tax Deferred Growth

Investing in your future may not seem ideal when you have bills to pay now. At Royal Legal Solutions, we understand the ups and downs of daily finances. However, using a tax-deferred investment strategy can help ensure you can enjoy your golden years as you wish. Below, we take a look at the benefits associated with tax-deferred investments and some of the best ways to build your “nest egg”.

Tax Lingo You Should Know

“Tax-deferred” does not necessarily mean you will never pay taxes. Instead, it refers to investment earnings that accumulate free of taxes. These “tax-free” investments and their returns are only taxed once you make withdrawals. Depending on the plan you pick, you have the option of paying taxes before investing instead of later when you withdrawal. But we will talk about that more in a moment.

The Benefits of Tax Deferred Investments

There are two primary benefits when it comes to tax-deferred investments, both of which primarily revolve around saving you money and reducing taxes.

Invest Now, Pay Later

First, by paying taxes later, your investment returns are allowed unrestricted growth. This means that the money that would be taken by taxes, stays in your account. The more money in your account, the more you can invest. With more investments comes a higher potential return.

Potentially Lower Taxes

Second, most investments are initially made prior to retiring. In general, the taxes collected from your employment wages are much higher than those that are levied against your retirement earnings. By default, most Americans earn less during their retirement years than they did while working. Whether working part-time, holding easier jobs, or relying on their “nest egg” – retirees are not typically working high-dollar 9-to-5’s. By waiting to pay taxes on your investment gains, you can potentially owe less than you would if you were taxed upfront.

Types of Tax-Deferred Vehicles

So how can you jump onboard the tax-deferred train and start increasing your retirement fund? Most people jump on the bandwagon in one of three ways:

Let’s take a closer look at the differences between these vehicles.

401(K)

A 401(K) makes for a great long-term investment strategy. Often offered by employers, contributions are made on a pre-tax basis. This means, not only are you investing in your future, but you are also reducing your taxable income. Many employers will match your contribution as well, increasing your investment capital. (Check with your employer. Some may require a certain number of service years from you before they fully match your contributions. Others may have a cap for dollar-to-dollar matching.) There is a catch with 401(k)s. Withdrawals made before retirement will be subjected to higher taxes than they would be if made later as well as an IRS penalty tax. In addition, most 401(K) companies will treat your withdrawal as a loan; you will need to repay the funds should you take a withdrawal before retiring.

IRAs

There are several kinds of IRAs available. Traditional IRAs tend to be a favorite of those grossing $200,000 or more annually. In fact, 64% of those with higher incomes have at least one traditional IRA. Contributions made to a traditional IRA are tax deductible in most cases. However, an early (or pre-retirement) distribution will subject you not only to higher taxes, but also to an additional penalty. Roth IRA contributions are made after taxes have been taken from your wages. As with traditional IRAs, your investments can grow tax-free. While post-retirement withdrawals are tax-free, the IRS makes a clear distinction when it comes to early disbursements. Your original contributions can be withdrawn at any time from a Roth IRA; distributions of earnings, however, are subject to income taxes and a 10% penalty tax. For those who elect to open a Self-Directed IRA (SDIRA), which can be either traditional or Roth, investments are also tax-deferred. Because you must have a custodian for a SDIRA even though you make your own investment decisions, make sure you hire a reputable investment professional who won’t take advantage of these specialized nature of these accounts. (Our investment professionals have years of experience.)

Deferred Annuity Contracts

An annuity contract is a deal between you, as the investor, and a life insurance company. In a deferred annuity contract, income payments from your investment are paid at an agreed upon future date, as either installments or a lump sum. There are two phases to a deferred annuity contract – the investment savings phase and an income phase. Deferred annuity contracts can have fixed or variable rates associated with them. Withdrawals from annuity contracts are a bit more complex than those of 401(K)s and IRAs. Annuity contracts are typically subject to a “surrender period”. Depending on the contract, investors may be required to wait many years before withdrawing money from their account. Should they pull money prior to the end of that period, they will have to pay a “surrender charge”. As with the 401(K)s and traditional IRAs, a 10% penalty is charged by the IRS if money is withdrawn before retirement and withdrawals are subjected to income tax rates.

Tax-Deferment and You

Tax-deferred investments are great for planning your retirement. Pre-tax deductions lower your taxable wages, giving you a bit of a savings upfront. By not paying taxes immediately on your investment returns, you are able to invest even more. This creates a potentially larger return as you approach retirement age. When you do make withdrawals during retirement, the taxes paid on them are lower as well. Whether helping you arrange annuity contracts or providing financial advice and investment support on your IRA, we are here to help.

5 Facts About Using Social Security For Retirement

Royal Legal Solutions can help you invest whether you are currently working or not. While your 401(K) or Individual Retirement Account (IRA) is a great way to save for your future, your social security benefits will help too. Franklin D. Roosevelt signed the “Social Security Act” into law. This Act, which set up a trust fund, created a systematic benefits program that would support retirees and their survivors. This Act was amended in 1956 to also include disability benefits. But there is more to Social Security than that. Below are five facts you may not know about social security.

1. The Social Security Trust Fund is Massive

In 2017, the Social Security Administration (SSA) reported that the Social Security Trust fund had a total reserve of $2.85 trillion. With the exception of the seven largest countries, this reserve exceeds the gross domestic product (GDP) of every other country in the world.

2. Social Security Supports Millions of Americans Every Year

The trust fund may seem massive, but it is all a matter of perspective. The number of Americans who are reliant on Social Security benefits at the end of 2016 may shock you. According to the SSA, 61 million Americans collected benefits from the Social Security trust fund. That equates to $911 billion in benefit payments in 2016 alone.

3. Social Security Benefits are Subject to Income Taxes

While Social Security benefits are indeed subject to income taxes, that was not always the case. An amendment in 1983 to the Social Security Act made benefits taxable. Today, different thresholds dictate what percentage of benefits are eligible for taxation. For those with incomes between $25,000 individually or $32,000 as a couple annually, 50% of these benefits are subject to income taxes. For households that earn more than $34,000 alone or $44,000 together each year, 85% is treated as taxable income.

4. The 35 Highest Paying Years of Your Career Dictate Your Benefits Paycheck

Your benefits are directly determined by the average of your highest earnings over a 35-year period. That means that minimum wage job you held bussing tables in high school likely will not affect how much you qualify for when it comes to your retirement benefits. Royal Legal Solutions wants to help you make the most of your golden years. When you invest with us, our experts can help make sure you can retire with more than just a social security check.

5. Benefit Adjustments No Longer Take a Congressional Act

For many years, benefits were only increased after an act of congress determined they would. That changed in 1975, however. Increases now occur automatically at an administrative level. (Thank goodness for that! Now you do not have to wait for Congress to hear, debate and rule on benefit increases.)

Social Security Payouts

Claiming your Social Security benefits early may seem like a great idea. After all, 73% of beneficiaries opt to receive their benefits starting around the age of 62. However, waiting until later may be better in the long run and increase your benefit payouts. Our professionals want to help you maximize your benefits. After all, we here at Royal Legal Solutions understand just how hard you worked to earn those benefits.

What Forms An Investment Bubble

Investing can seem like an easy way to make tons of money. However, this is not always the case. There is a world of difference between speculation and investing. Most amateur investors speculate. They jump on trends that seem like the fast track to fortune, only to end up losing out. Our experts can help you make the most of your investments and contributions. However, we also want to make sure you have the necessary tools to make wise investments as well. Below, we discuss investment bubbles and why you should not be quick to jump on the get-rich-quick schemes.

What Is An Investment Bubble Anyway?

An investment bubble is an economic cycle that occurs when the price of an asset rapid escalates without justification from supply and demand. Because the supply and demand inflation is unwarranted, experienced investors end up selling off their stock equally as quickly. That’s when it happens – the bubble bursts!

The Tulips of Holland: A Case Study to Consider

During the 16th century, a botanist in Holland brought tulip bulbs back from a visit to Constantinople with the plan to plant and study them for his own research purposes. Awed by these new flowers, his neighbors stole several of the bulbs. After planting and harvesting the flowers, an inadvertent frenzy started. Wealthy citizens paid extremely large sums for rare varieties. In fact, anything of value was traded for tulips, including homes and properties. Future exchanges popped up, adding fuel to the speculative prices and feeding into the economic frenzy. But, when a buyer failed to show up to pay for a large tulip purchase, a sudden realization occurred. The price increases had risen to the point that they had become unsustainable. And that is when the tulip bubble burst.

Cause and Effect: When the Bubble Pops

Bursting bubbles are difficult to identify but there are a few factors that experienced investors may catch just in time. They typically follow a pattern.

    1. Excessive market liquidity is typically a given.
    2. This creates accelerated gains that are not directly supported by any real demand. A surge in investments occurs due to easily obtained credit and large, disposable incomes.
    3. Because of the limited number of assets, wiser investors typically sell off their assets quickly.
    4. This renders the market illiquid and leads to the sudden bursting of the bubble.

A bursting bubble can negatively affect the economy. It can also decrease your overall net worth if you have invested heavily in it. While you may not be an expert, the professionals at Royal Legal Solutions have years of experience to help you avoid costly mistakes with investment bubbles.

The Tulips of Holland: National Panic

The bursting of the tulip bubble created massive panic that affected not just Holland but all of Europe. Tulip pries did not just drop, they plummeted. Where once farms were traded for tulips, the flowers became with a minute fraction of their previous worth. The panic was so bad, the Dutch government actually had to step in and take control. Authorities allowed contract holders out of their agreements when 10% of the contract’s value was paid. The rich and poor alike lost fortunes.

Navigating the Bubble

Our investment professionals have years of experience; they can help pinpoint potential bubbles and trends at affordable prices. Investing in a bubble is not necessarily going to ruin you. However, knowing when to invest and when to sell is an invaluable piece of knowledge when it comes to preserving your net worth.

Asset Protection: Insurance or Something More?

When it comes to asset protection, insurance companies are basically a criminal business.

They collect premiums, then deny coverage when you need them to cover something they should cover. If you have a big claim, you'll have to sue the insurance company just to get them to pay.

As an investor, you shouldn't have to rely on insurance for asset protection. Sure, your policy will cover the slip and fall accident that happened on your rental property's front porch because it was a little icy outside.

But what about when your tenant falls through a staircase and ends up permanently disabled? All of a sudden the insurance company will say "this is a case of gross negligence outside of your policy. You can sue us and spend thousands of dollars against our millions of dollars and hope that someday, maybe, we'll eventually pay you something."

Good luck with that.

To protect your assets as a real estate investor, you need to understand asset protection basics, then you need to come up with a custom asset protection plan. You need to understand land trusts and limited liability.

Dear Real Estate Investor: Lawsuits Are a Money-Driven Business

 

[00:07] As a real estate investor, you have to understand that lawsuits are a business and anybody's looking to sue you. They're looking to get money out of you. I've proper asset protection strategy keeps you from going from finding out what you own and if they ever were to see you, it limits what they can get to, but more importantly, a great asset protection strategy exhausts their will and the resources to fight you. This keeps people from continuing with the lawsuit. It gets them to settle early. It gets them, in most cases, to stop the lawsuit before it even starts. What you have to understand is that because law suits our business, the main part is how do we get money out of somebody when we sue them. This is what an asset protection strategy fights. Since it protects the assets from being seized by somebody via judgment, then that person doesn't believe that they're going to get anything out of their investment in a lawsuit because you see lawsuits only paid for in two ways.

[01:12] It's either I pay an attorney to sue or that the attorney takes it on contingency. But if in my research of the individual, I find out that they have no assets that it looks like on paper, then they qualify for food stamps. How much money am I willing to risk for a judgment which is merely a piece of paper without an asset to be able to seize a judgment is worthless. Moreover, there is no attorney that's worth his salt that ever going to take a case like that on contingency, which is free for the client and the attorney risks everything. Attorneys only take sure fire cases that they are very confident that they can win and collect on. So when you ask yourself, how do I protect myself from a lawsuit, which you should really be asking yourself is how do I make it look like I don't own it? My name is Scott Royal Smith. I'm with royal legal solutions and I'm an asset protection attorney for real estate investors and I'm a real estate investor myself, and I'd like to help you

[02:16] if you thought this content was good, you have to go see the bigger pockets podcast that I did. It was the top 10 things every real estate investor has to know about asset protection, and you can go listen to it right here.

Asset Protection Means Making Litigation A Nightmare For The Other Guy

Asset Protection: Make Litigation A Nightmare

If anybody looks to sue you, you want to look like you own nothing. You want to make it impossible for them to try to come after you. One of the ground rules of asset protection is that you need to make litigation a nightmare for them.

And what does a nightmare in litigation mean? It means having to risk thousands and thousands of dollars with the mere hope of being able to get something out of the other party.

Now ask yourself, as an investor and as a business person, do you go to gamble in Vegas expecting to win big? Probably not, and neither will an attorney asked to take the case on contingency. Listen, attorneys are in the business of only taking basically guaranteed wins. And we make it such a gamble for them to try to come after your money they just won't do it.

And that's what we specialize in. We make it as difficult as possible at Royal Legal Solutions for anybody to find out what you own or succeed against you in a lawsuit. And even if they were to succeed in a lawsuit against you, their ability to come after your assets would be minimized to the fullest extent of the law.

My name is Scott Royal Smith I'm with Royal Legal Solutions. I'm an asset protection attorney specializing in real estate asset protection, I'm a real estate investor myself and I'd like to help you.

The Only Two Ways to Lose Money Real Estate Investing: Lawsuits and Bad Investments

The Only Two Ways to Lose Money Real Estate Investing: Lawsuits and Bad Investments

[00:08] Real estate investors lose money in two ways. The first is because they actually made a bad investment. The second is because somebody took it from them and they can do that easily through a lawsuit and lawsuits are basically just legalized stealing. So one of the key things that we have to do to guard against half of the way that we will lose our money in real estate investing through litigation is protect ourselves from that. That's what an asset protection strategy is. A proper asset protection strategy protects you from those lawsuits. It protects you from anybody looking to try to sue you. Now when we look at how does that do that is because if your assets are held properly and compartmentalized inside of an LLC structure, it greatly diminishes somebody, his desire to want to sue you. We do this because we start taking them into the deep waters.

[01:04] We start exhausting their will and their resources to fight because if we make it look like you don't have much to come after and we make it look like it's very tough to get to and it actually will be very tough again, then the person on the other end of that says, how much am I willing to invest and put up my hard earned dollars with just the hope or the chance that I might be able to get something out of it? Most people won't put their hard earned dollars on a gamble just like they were going to Vegas to go for a lawsuit, and in fact the last, the attorneys to take the case on contingency. Well, what I can tell you is that attorneys are only taking cases on contingency because they believe that it's going to be an easy win for them because that's their business and we make it a gamble or somebody to come after your hard earned dollars and your real estate investments. The reality is is that it won't make business sense and they just won't do it. My name is Scott Smith and I'm an asset protection attorney specializing in real estate asset protection. I'm a real estate investor myself and I'd like to help you

[02:28] if you thought this content was good, you have to go see the bigger pockets podcast that I did. It was the top 10 things every real estate investor has to know about asset protection, and you can go listen to it right here.

How to Start a Self-Directed IRA With an LLC

How to Start a Self-Directed IRA With an LLC

[00:07] People will tell you that your IRA is safe and their raw, your IRA is only safe from lawsuits against you and somebody's coming after your IRA. But your Iras invested in an asset class such as real estate where it can be sued. The IRA itself is exposed. Also your IRA is exposed in the sense that it can be disqualified if any of the transactions of the IRA are expert. So there's two things that we do. The first thing that we do is we can split up multiple IRA accounts. So that way if any one type of investment, uh, is disqualified or has some type of issue, um, that I, that the IRS would look at, well that limits your exposure because it's only that one account that we have to worry about. The second thing that you can do is set up a self directed IRA with an LLC. Read about the benefits of self directed IRA here.

[00:57] I like to do it with a series LLC, but that allows us to do is if you look at our videos regarding the series LLC structure, we can take each different asset belonging to the IRA and put it into its own series. So that way if there's an issue with acid a, it doesn't affect acid, B, c, d, et cetera. And this way, if you have one property that has a lawsuit against it, somebody that can't take your entire IRA amount, they could only take a very limited amount of that structure. So make sure that your IRA is properly structured with asset protection because it's not by default, the safest way to do it. My name is Scott Smith. I'm an asset protection attorney with real estate. I'm a real estate investor myself. I want to help.

[01:40] Yeah,

[01:46] we're not like a normal law firm. We believe in putting out only high value content that's going to help you directly. You can get it on our youtube channel. You can get it on our website, or you can listen to all the different podcasts that I do. I am constantly putting out information because I know that this is going to make me the most valuable person in your life. Go check it all out right here.

[02:07] Good.

How to Maintain the Records and Accounting of a Company

How to Maintain the Records and Accounting of a Company

Why file an LLC and manage your company that way if it's just going to get invalidated anyway? Can't a good litigation attorney just pierce an LLC? That advice is just wrong. It's not true. LLCs are incredibly hard to pierce if they are maintained correctly. The problem is that most people, your average Joe Plumber that's running their company, doesn't do the things that are necessary to maintain the adequate corporate structure. So what are the things that you need to keep in mind? The first thing you need to keep in mind is that you must maintain records and an accounting of your company. What is the money that's coming in? What is the money that's being spent? You need to run everything through a bank account for your company so it has the appearance of being a legitimate, separate entity from yourself. You cannot treat the money of the company as if it were your own piggy bank. This means that in the accounting of your company, if you ever need to take money out, you must keep an accounting of it as a dividend from the company. If you fail to do these steps, the corporation can get pierced. If the corporation is pierced, it provides no protection. However, if you were diligent in maintaining adequate records of the company, you will be protected. My name is Scott Smith. I'm an asset protection attorney out of Austin, Texas. I want to help protect you.

The Royal Legal Solutions Commitment

The Royal Legal Solutions Commitment

I want to congratulate you on taking the tine to become the best real estate investor you can be. At Royal Legal Solutions, we're committed to make sure you have the best tax and legal information to make the most money you can. Visit us at our website at royallegalsolutions.com at the website and phone number below you'll always be able to reach us. Schedule a consultation, get the information, and make some money.

What Is a Charging Order?

What Is a Charging Order?

So I'm a real estate investor. I have my properties properly structured inside of an LLC. And out of the blue I got into a car wreck. And this resulted in a judgement against me because it exceeded the limits of liability of my auto policy. Now they have tried to record that judgement against my LLC. Can they take it? The answer is no. This is part of the protections that an LLC gives you. It allows you to be able to know that your assets are gonna be protected from the personal actions that you take in your day to day. You'll know the exact laws that'll happen inside of your particular state. Because it'll be under the heading of what's called a charging order. In most states, the way it works is that they can't take your membership interest in the LLC, they can't take over a management function, they can't force you to sell the assets of your LLC. What they can do is put a lien against your LLC. So that way, if there's any distributions from that LLC to you that it goes to your creditors. There's ways around this if you ever end up in that situation. One of the ways that we would think to do that, is by selling your interest in the LLC to another party. But you always want to keep that in mind with what's gonna happen in your particular state. With what's known as the charging order. Look it up, make sure you know those laws whenever you're setting up your LLC to know exactly what the limits are of your liability there before you end up setting up your structure. My name is Scott Smith, I'm an asset protection attorney specializing in real estate. I'm a real estate investor myself and I wanna help you

Judgment-Proof

Judgment-Proof

This might sound strange to you as a real estate investor, but you're in one of the most high-risk industries in the United States. The United States is already a very litigious country, and real estate is the most litigated of all of those industries. You're exceptionally at risk if you hold any assets in your personal name. What we specialize at Royal Legal Solutions is making you what's known as judgement proof. That means if anybody sues you, they get nothing.

Quick Fix: 2018 IRA Contribution Limits

Hello, fellow investors. Every new year, I get many questions about IRA contribution limits and what changes have taken effect. This year, there have been many more questions than usual about this subject, as well as the new tax laws.  Don't worry, there's an article in the works about how these new tax laws will impact real estate investors soon. While it would be impossible to answer all of the questions I've received in this space, I will be giving an update on the IRA Contribution Limits for 2018.

Today, we're just going to talk about a "quick fix" for your IRA and retirement concerns. We'll also show you one big way to get around the 2018 limits and make the most of your retirement savings.  Even better, you can learn all of this information in less than ten minutes.
 

2018 IRA Contribution Limits

Let's start with the good news:  IRA contribution limits remain the same in 2018 as they did in 2017 (and even as far back as 2016). Here's the quick and dirty update:

But maybe you want to contribute more. If you're ready to take your retirement account to the next level, here is our Quick Fix solution:  take advantage of a self-directed IRA LLC.
 

Why Is a Self-Directed IRA LLC Good For Me?

Self-Directed IRA LLCs  are a mouthful to talk about, so it's possible you haven't even heard of this tool at all. But they will offer you the ability to make tax-free investments without custodian consent. Since you don't need to get permission from a custodian (you are, after all, an adult--or possibly an extremely bright teenager planning retirement early), you can make the investments you want, and you can make them faster than you would if you were stuck in Traditional IRA Land. Self-directed IRA LLCs are special purpose liability companies. Yours will be fully owned and managed by you. You can lord over it and feel like a God on the weekends. The LLC can become a pass-through for tax purposes, which allows you, the owner, to assume the tax burden instead of the LLC. This gives you tax options.
 
In most cases, income and gains flow back into the IRA tax-free. You are also able to keep and funds in an LLC bank account without having to go through a custodian. These accounts operate similarly to personal checking accounts, but the company is separate from you as an individual. You have control over, and access to your money, which means greater investment flexibility.
 
You can invest in anything from your IRA LLC. And when I say anything, I mean literally anything: real estate, gold, Bitcoin, and so much more is all fair game. Your only limit is your imagination. No matter where you put your money, your income and gains flow back into your fund tax-free. You can stick it to Uncle Sam--who among us hasn't wanted to? And even better, you can maximize your contributions and plan the retirement you've fantasized about for during your working life.


Quick and Dirty Recap of Self-Directed IRA LLC Benefits

 
So, to briefly review for the scanners in the audience, when you get a Self-Directed IRA LLC:


Pretty cool, right?

That's it for today. If you have any questions about Self-Directed IRA LLCs, want to sing their praises, or want to pick an argument with me because you think I'm totally off-base, you can do so in the comments below. Let's spread the Self-Directed IRA LLC Gospel and work towards a happy, healthy, and comfortable retirement plan together.
 
 
 

Maintain Title insurance During a Property Transfer

Maintain Title insurance During a Property Transfer

Any time you transfer property you must consider the title insurance implications. Title insurance will generally be invalidated upon the transfer of the property. However, title insurance isn't invalidated if you transfer the property to a wholly owned LLC. That is, an LLC that's completely owned by you, the person that also owned the property. You also won't invalidate it if you add your spouse to title, for example. That'd be a transfer, but in that circumstance they're not going to invalidate it. You also can transfer the property to an intervivos trust where you are the settlor of that trust. This is the type of strategy that we'll be using with, inside of our anonymity land trusts when we start transferring property. My name is Scott Smith. I'm an asset protection attorney, I'm a real estate investor and I wanna help you.

The 3 Most Common Asset Protection Misconceptions Explained

As a real estate investor, your most obvious goal is to make a profit. But in order to make a profit, you need to protect the wealth you've already accumulated. After all, you've gotta spend money to make money. And if you've got none to spend, you won't be able to make much.

Not only does asset protection protect the wealth you've already accumulated, but it also protects you personally. It protects your reputation, your credit score and your wealth. However, many investors seem to be getting mislead by financial advisers, CPA's and keyboard warriors as to what asset protection actually is.

Asset Protection Misconception Number 1: Insurance Protects You

You know what I hear the most from my clients, who are exclusively real estate investors? "I thought all I needed to protect my assets was a general liability insurance policy?" This couldn't be more further from the truth.

I have nothing against insurance, but when you think about it, they're almost a criminal business. When you get insurance, you're betting against yourself. An insurance company is like the house in a game of casino poker. In the end, they never lose. And even if the insurance company pays out for a claim, you still lose because they're going to raise your monthly premium.

The truth is you do need insurance. But insurance alone won't be enough to protect your assets. Insurance policies include what are called "exclusions". Insurance companies include exclusions in your contract to minimize their losses. Remember, their goal is to make a profit, just like you.

Unfortunately most people won't sit down and read these exclusions. And even if they did, they probably wouldn't be able to understand the complex legal language insurance companies use in their contracts. What these exclusions do is prevent you from suing a company for any particular reason, as outlined in the "exclusion". It could be an exclusion for something as simple as a fire caused by a microwave, to a volcanic eruption.

Most liability insurance policies will protect you from a slip and fall. That's it. When a lawsuit comes around, your insurance company will be nowhere to be found. This is why you need a real asset protection strategy. A proper asset protection strategy is supported by:

What I like about this bullet pointed list is that it shows how insurance is only one third of an asset protection strategy. If you're a real estate investor and you only have insurance, that's the equivalent of going into battle with only one third of the ammo you need.

Asset Protection Misconception Number 2: Forming A Legal Entity Guarantees Your Protection

Yes, LLC's, Trusts and Corporations do provide you with some serious legal protections. But that's only if you properly set them up and maintain them. You can't just form an LLC and do anything you want.

For example, once you have an LLC you have to be extremely careful about not mixing your business assets with your personal assets. The reason you form an LLC in the first place is to separate your business assets from your personal assets. If someone sues your LLC and the court finds out you used your business credit card for personal reasons, such as getting a haircut or going to see a movie, a judge will allow a plaintiff access to your personal assets.

So the moral of the story is, when using a legal entity like an LLC, be sure to keep careful records of your business related transactions, and never mix business with pleasure.

Asset Protection Misconception Number 3: An Asset Protection Strategy Can Be Put In Place Later and Still Protect You

I can't tell you how many times I've received a call from a real estate investor seeking to put in place an asset protection strategy after someone's just filed a lawsuit against them. Asset protection isn't like a hat you can take on and off when you please, it has to be put in place well in advance of a lawsuit. This is because there are laws that basically make transferring assets in the middle of a lawsuit illegal.

The bottom line is if you want to protect your assets to the fullest extent of the law, you need a proper asset protection strategy. And if you think an asset protection strategy isn't worth your investment, I'm going to end this article with 3 facts: Yes, an asset protection strategy will cost you thousands. But a lawsuit will cost you millions. Everyday real estate investors just like you get sued and someone hits the lottery on their assets. Don't let that happen to you.

Series LLC Examples: When Things Go South Legally

There is no business model that provides complete immunity from market reversals, natural disasters, or changes in laws and regulations.  Stuff happens to everyone, in every business.

And when even the best-laid plans of talented and successful business people go awry, the polygamous marriage among companies, creditors, or customers often end up in court.  Unlike holy matrimony or other business models, Series LLCs can protect all parties in advance.

Most often, with the right lawyer as “Best Man” or “Maid of Honor” chaperoning the courtship, the headaches and heartache of divorce court can be avoided altogether.

When The Series LLC Saves The Day: Two Examples

The first comes from real life: the premier, if not only, case in which a federal bankruptcy court upheld the concept and validity of SLLCs and denied a creditor’s attempt to game the system in their favor.  The second is hypothetical, but has real-life implications. After all, “happily ever after fairy tale marriages” are exactly that: fairy tales.

Regardless, all levels of state, local and federal government (courts, legislatures, regulatory agencies, the I.R.S. itself) are interpreting and enforcing myth as reality.  Judges, politicians, and bureaucrats don’t like change. They love inertia, momentum and precedent–campaign speeches notwithstanding.

Example 1: In re Dominion Ventures, LLC, No. 11-12282 (Bankr. D. Del.)

Now, it’s impossible to get two lawyers together without getting lost in a gigantic bowl of word salad or a maze of rabbit holes.  Put them in a courtroom in front of a judge (who’s also a lawyer) and things actually get simpler.  The focus and facts are limited to a relevant Reader’s Digest version.  Legalese will be kept to minimum.

Dominion, a legitimate and reputable group of businessmen, established an SLLC in full compliance with state law.  Both the “parent” company and each of the “children” cells operated independently, maintained separate accounting, and did everything “by the book.” That included using sound business practices.  One thing led to another and Dominion needed some help on credit and cash flow.  “Creditor X” to the rescue!

All that was required was a change in the original Operating Agreement and absolute veto power over all operations and decision making.  Well, the bailout didn’t prevent the boat from sinking and ultimately everyone ended up in Bankruptcy Court.  Now remember, the issues had nothing to do with SLLC legislation. Things just didn’t work out.  “Creditor X” claimed that its after-the-fact position prevented SLLC protection and that all assets of all “children” should be consolidated to satisfy the debt.

Maybe “Creditor X” should have retained a lawyer who had the experience and expertise to advise against the unenforceable loan at the altar.  At the end of the day, the assets of Dominion, its members (owners), and all other respective creditors of the individual “parents” and “children” were protected.

Example 2: Moldy Mary vs. Larry Landlord, (S) LLC

Larry Landlord bought his first duplex just after his graduation from high school.  The property wasn’t much to look at, but it was cheap and he was handy with his hands.  Four years later, a complete repainting of the exterior, and a brand new roof had improved the curb appeal.  The kitchens were remodeled.  The flooring, plumbing, and paneling were upgraded.  Weeds and dirt had been replaced with immaculate landscaping.  Prospective tenants had to get in line on a waiting list.

So, he bought another rental property. And another.  And another. All under the protection, as independent series, of an SLLC.  Tenants clamored for a space in his well-maintained, well-managed rental properties.  As many investors were knocking on the door to participate in the next project.

Eventually, Larry had expanded operations to include 14 properties (and 14 segregated series), to include 5 apartment complexes and 10 members (owners).  Each was fully compliant with state law requirements for documentation, maintaining separate bank accounts, tax filings, and accounting.  Some participants were members of a dozen common projects.  Some had invested in only one.  According to sound business practice, common sense, and the exercise of due diligence, the group hired a a highly reputable building inspector. He gave the building a comprehensive evaluation for each unit.
A sixth property, a high-rise apartment complex costing as much as all other holdings combined, came onto the market and Buster Bankroll contacted Larry.  Knowing nothing about real estate or property management, Buster wanted to invest as an absentee landlord.  Negotiations went well.  Occupancy was at 94% after the first month.

Moldy Mary was one of Larry Landlord’s very first tenants.  She’d been living in the same apartment, owned by a different series, for about 8 years.  A few years previously, after a particularly heavy rainstorm, she’d noticed water spots on her walls and a peculiar smell in her bedroom. The next day, Larry Landlord’s maintenance crew arrived, replaced a section of roofing shingles as well as some interior sheet rock.

Fast forward to 6 months later. Mary got sick. Really sick. So did her husband and three kids. Medical bills exceeded insurance limits. Neither spouse could work and lost their jobs.  The entire family was forced to leave the apartment and move in with relatives.

But to prove a point, when the family contacted Louie Litigator, lawsuits were filed the same day. Multiple, massive lawsuits. Fortunately for Larry and Buster and all other members (including those who owned Mary’s series), the SLLC was on their side.

Based on every legal protections provided to the Delaware SLLC structure only one of the choices below are NOT true.  Let us know which you chose:

  1.  Larry Litigator did an hour’s worth of research and determined that liability lies with only the series that owns Mary’s apartment. He has withdrawn from the case and the “blood-from-a-turnip" strategy.
  2.  The members of the series who own Mary’s apartment have no exposure beyond their investment.
  3. The very specific language of statutes and growing legal precedent will not threaten the assets Buster or Larry or all other members of any and all other series (or Larry Landlords, (S)LLC).

Guess in the comments section below.

Learn More About the Series LLC

Learn more about the Series LLC here on the Royal Legal Solutions website. We've written extensively about the benefits of the Series LLC, and given much more information about how the Series LLC works. We offer many more educational materials on this subject because we believe all real estate investors have the right to be informed. If you're considering forming a Series LLC, contact us for your consultation today. We'll get the job done right, and keep your head above water if things go South!

Trustee Vs. Executor: Who Do You Need For Estate Planning?

Unless you are the villain in a spy thriller, there's unlikely to be any intrigue surrounding the reading of your will. Sure, this is a great cinematic device, but a "surprise" announcement regarding your trustee or executor is neither funny nor mysterious in real life.

The events following your death will most likely be painful and dramatic enough as it is. You can ease some of the misery by planning ahead, and letting your chosen executor and trustee(s) know about their jobs ahead of time.

That said, sometimes the executor or trustee really do find out at the last minute. Whether you're in this situation or planning your own estate, this article is for you. You'll learn about the duties of both positions, and how to survive if you're picked to serve as either.

What's the Difference Between a Trustee vs. Executor For Estate Planning?

The executor represents the dearly departed. This person is tasked with administering and distributing the estate. For an executor to do their job properly, he or she must know the identities of any heir and have a solid comprehension of the will. Their main job is to ensure the deceased's wishes are carried out.

Trustees, on the other hand, have a more narrowly defined role: managing a trust. Not all estates necessarily have trusts, but many do. The first order of business for a trustee is to clarify which assets are held within a trust. Check out our asset checklist for estate planning to get started.

It's rare for all of a person's assets to be placed in a trust, so some may be stated only in the will or other documents.

In estate planning, trusts are used to clear up any possible confusion about where certain possessions go. A person may decide to use a trust to offer guidance and maintain more control over their estate. The trust's "job" is to literally own properties, cars, family heirlooms, or any other assets that the creator decides to place within it. The person who creates the trust provides for its funding. The trustee, who may be an individual or even several people, is tasked with determining how money and other assets flow in and out of the trust.

Trust executor duties include liquidating estates. Trustee duties include managing estates.

The former is usually temporary, while a trustee might serve in that capacity for years. There is rarely compensation for either. Many have tried to monetize this position, and few have succeeded. So if someone asks you to serve in either capacity, there are some things you'll want to be aware of. After all, you want to honor your deceased loved one's wishes, don't you?

If this happens to you, don't be afraid. We've got some tips on how to execute and cope with your new responsibilities.

Get Your Estate Planning Paperwork in Order

Before you do anything, you need to review any and all paperwork relating to the estate. These should cover the basics: funeral arrangements, how the deceased wants the estate managed, and preferences about matters like burial. Assuming the deceased planned ahead, there will also be a specific document cataloging valuables like heirloom necklaces or firearms. In legalese, we call this a "memorandum of personal property."

Next you need to determine the assets, which is usually only a hassle if the document above is incomplete or totally absent. If you're in such an unfortunate situation, you may need to get some help. Death leaves quite the paper trail. You're going to need to hunt down everything from the glaringly obvious like bank accounts and real estate, to the not-so-obvious assets like IRAs/401ks, and perhaps a secret vault or two if you get lucky.

Identify the Heirs

Most of the time, heirs are direct relatives. You can usually expect to see them at the funeral. Even if you don't, your paperwork from above should list any heirs. But you should know ahead of time these matters often get sticky. What if one of the heirs has died themselves? Details like this can easily go unnoticed if the most recent will is, say, ten years old. This is when it becomes your job to make a decision--one that can breed contempt under the best of circumstances. Hey, there's a reason people have tried to figure out how to get paid for theses services.,

Speaking of money, there are almost certainly going to be creditors that need to be paid. You need to guarantee that all creditor claims are taken care of from the estate. If you don't pay up, you may suffer liability. "Liability" is legalese for "an all-around bad time."

Yeah, this is a thankless job.

Deal With the Creditors

It doesn't take long for the vultures to circle. You'll have two kinds of creditors to tango with: secured and unsecured. Worry about secured creditors first. These are folks like conventional lenders. You'll want to make sure these types of creditors are notified of the deceased's passing right away. Make payments immediately, as soon as reasonably possible. This is to avoid that all-around-bad-time mentioned above.

Unsecured creditors, on the other hand, are a totally different ballgame. They have to actually come after you in the form of a claim. Unsecured creditors can include everyone from the neighborhood bookie to the (much more likely) credit card companies. Fortunately, credit card companies are fairly realistic about the fact that they're unlikely to be paid off in full. So bust out your haggling skills. There is some wiggle room about the total bill, but don't expect the company to tell you that.
While credit card companies won't break your kneecaps, they can make probate court an even bigger pain in the ass than it already is. Both types of creditors can demand and collect legal fees in a court setting. If the estate ends up in probate court, you will be obligated to alert all creditors of this fact.

Still with me? At this point, nobody will blame you for cursing whoever named you executor.

To recap: Don't mess around with secured creditors. It's a good idea to delay making unsecured creditor payments, because if a claim is never made you won't be on the hook. There's also a clock on how long these types of creditors have to make a claim at all.There’s a good chance this one is going to take care of itself by dissolving into the ether of banking bureaucracy. Now it's time for the fun part: probate court.

Probate Court For Estate Planning

The estate documents should outline exactly how the estate will be administered. Sometimes, the court has to approve certain aspects of this, such as when the family home is transferred to an heir. This is particularly common if the estate is based solely on a will (all the more reason we should all be thorough in our estate planning.)

If the estate you're dealing with is more "Jerry Springer" than "cinematic drama," you may find issues with the identities of the heirs. We're kidding. This is actually more common than most of us would think. Fortunately, it's on the court to figure this out. You've got enough on your plate. Let the judge interpret the law, or anything ambiguous for that matter. Even if you have legal chops of your own, you'll likely need a greenlight from the court to interpret much of anything.

We're approaching home base: stay with me, folks.

Income Tax Returns

That's right, you get to deal with both of life's inevitabilities in one experience: death and taxes. You'll have to file the deceased's final tax return. You'll want to be certain that you label the returns with the word "DECEASED.

As your last task, you may have to also file an estate return. This is legally required if the estate earns over $600.00 in gross income.

Final Legal Estate Planning Tips

Don't go it alone if you don't have to. We're sure you're smart, but it's unlikely that you are both an attorney and a CPA. Enlist help from the pros. The estate will assume their costs, particularly if it is a large or complex one. If you spend any of your own money in the course of your duties, the estate should reimburse you.

Be aware that this is a sensitive time for the relatives and other loved ones.The role can be as emotionally draining as it is time-consuming. But don't forget that you have a job to do, and you must do with your head and not with your heart.

If you've been tapped to act as a trustee or executor, or if you need estate planning services yourself (if only to spare your loved ones from some of this rigmarole), get help from experts who know all types of estate planning and administration issues, and who can help in a compassionate manner. Don't let your death become a big traumatic affair played out on the probate court stage.

Tax-Free Retirement Distributions

Tax-free retirement distributions are the Holy Grail.

You too can drink from the cup of financial providence.

You’ve worked hard your whole life. When you start taking distributions from your retirement funds, you’re going to start paying federal income tax on them.

There are some exceptions to state income taxes though. Several states don’t require you to pay state income tax at all. Retirement plan distributions are no different in these tax havens.

So, you could go and live in one of those states. Florida isn’t just a place where people go to die. The weather is a nice bonus, but the real reason to retire in the Sunshine State is the lack of state tax on income.

If you’re concerned with flooding, have red hair, or just hate being around retirees, you can choose from Nevada, South Dakota, Texas, Washington, Wyoming and Alaska.

Thirty-six states have partial income tax exemptions. These include:
1. Public Pensions and Retirement Plans. Distributions from federal or state employer plans are exempt from taxation in many states.
2. Private Pensions and Retirement Plans. 10 states offer full exclusions for private pensions and retirement plans. Some of them differ between pension and contributory plans. Others make no distinction.
3. IRAs. There are some states that don't tax any retirement plan distributions, including IRA distributions.
Tennessee and New Hampshire are states that do not tax wage income and therefore they do not tax retirement plan distributions of any kind. There are also numerous states that exclude a certain limit of retirement plan income from taxation. For example, Maine exempts the first $10,000 of income received from any retirement plan, including IRAs.

Bottom line, the place you live can save you money after retirement. Find out which of these tax-free paradises has a little waterfront lot with your name on it.

If you really want to ball in retirement, check out our previous article on how to buy your retirement home ahead of time. Spoiler alert: you can do this tax-free too.

RMD Penalties

If you don’t take Required Minimum Distributions, you might get hit with an incredible 50% penalty. That’s almost half!
The 50% penalty is applied to any distribution you were supposed to take from your IRA. We’re going to need a philosopher to justify this one. “But you see, your income exists…in potentiality.” Well, your tax penalty exists
in actuality and it is a big one.

If you’ve been hit with a 50% penalty don’t panic. You may be able to get a waiver for the penalty if you admit the mistake to the IRS by filing a 5329. Come clean. Throw yourself at the mercy of the court.
The bad news is, there is a lot more paperwork.
FIRST, you complete section IX of form 5329. You need to state what your distribution should have been and calculate the penalty tax. You have to right the letters “RC” next to the dollar amount you want waived on line 52.
You still with me? If you can’t listen to money matters you’re going to have a hard time handling your money matters? You need to wake up soldier.
You’re going to have to write a Statement of Explanation that outlines two things:
You need to explain what makes your error “reasonable”. Mental health issues or bad advice from a bad advisor usually qualify. Maybe you’re just new to RMD’s. The IRS is, at times, capable of compassion.
The next thing you need to provide is the step-by-step process you are planning to take, or have taken, to correct the error. If you’re on top of things, you’ve already taken the missed RMD. This makes everything clean, from your explanation for the error, to the enemy’s acceptance of your reasonable explanation.
Keep in mind that RMD failures don’t disappear. The IRS is a relentless, greedy machine. They will get their money. Get your error corrected. Also keep in mind that with an inherited Roth IRA, these withdrawals could be tax-free.
Beating the IRS at their own game is one of our favorite pastimes here at Money Matters. Thanks for tuning in.