Estate Planning: The FAQs

Estate planning is confusing enough for the average person. But as real estate investors, we have a host of unique concerns on top of the Average Joe/Jane. It’s true that estate planning may be stressful for anyone, but understanding estate planning for REIs is too important to ignore. Luckily, this article’s a stress-free way to learn about the topic.

Death sucks, but let’s just accept it and take a few minutes to get hip to the basics. We’ve even got an educational piece to help you out: “Estate Planning: The How the Why and The Basics” handy for you. Check it out if you feel lost at any point here. We’ll wait for you to re-join us.

Back or already familiar? Great. Let’s dive into our most common estate planning FAQs.

1. Don’t I Have to Be Really Rich to Need an Estate Plan?

Definitely not. Everyone should create an estate plan for one simple reason. Dying without an estate plan is always more expensive (financially and emotionally) than creating a suitable, appropriate one..

Dying alone is expensive. Funerals are costly, any unpaid debts have to be handled, and of course, there’s your grieving family. They’re paying emotionally, spiritually, and with their time. If their time and money matters to you, creating an estate plan will at least give them a roadmap and fewer responsibilities.

Estate planning is more humane on families and loved ones, as they’re typically the ones having to round up your credit cards, make sure bank accounts get closed, worry about life insurance and the hundreds of other details that accompany death. When you really think about all of these costs together, the amount of money spent on estate planning begins to look like nothing.

2. Everyone Needs an Estate Plan, So Why Do Investors Have to Do Anything Different?

Don’t forget that your business is an asset with the ability to literally outlive you, possibly indefinitely depending on its structure. But the reality is simple. Estate planning is how we can direct where anything that matters to us goes when we pass. If you have properties and asset protection structures like liability-limiting entities (LLCs, Series LLCs, Delaware Statutory Trusts, etc.), estate planning just becomes more important.

3. Isn’t a Last Will and Testament Good Enough for Estate Planning?

Again, not at all. A full estate plan is not the same as a simple “Last Will and Testament.” Lord knows enough misinformation persists in popular culture about these documents. Those cinematic scenes we’ve all scene of some character hand-writing a last will, often upon deathbed or battlefield for dramatic flair are hilariously wrong. First of all, DIY estate planning is a bad idea. Tempting as it is to point out the many problems with these scenes, the most misleading aspect is that it glamorizes the will and makes people think that’s all there is to it.

Here’s the real deal: a will can be part of your estate plan. But you can’t rely on it alone. If you do, you’re likely to have to pass through this unfortunate soul-sucking spot called probate court.

5. What is Probate Court?

Probate Court’s a real drag. Basically, your heirs get to sit around and watch the riveting legal conversations that only the true dorks like us at Royal Legal like. During this process, you’ll be racking up fees for the Court, any attorneys or accountants needed, etc. It’s better to just avoid the whole mess altogether. And presumably to add insult to injury, the pros get paid out long before your heirs do, particularly if you attempt to DIY a will and miss a critical part. Sadly people do this because they see dramatic movie scenes of people penning Wills, etc. That’s a great way to get yourself a one-way ticket to Probate Court.

But you can avoid probate court with a real estate investor-tailored estate plan.

6. What Do Proper Estate Plans for Real Estate Investors Look LIke?

For real estate investors with under $10 Million in assets to defend, there are two fundamental tools that are essential for planning an adequate estate plan that also protects assets in life. These are the pour-over will and living trust. Let’s review both.

The living trust is a much more effective vehicle for conveying your assets directly and tax-efficiently (or even free, occasionally) to your loved ones and other heirs than the traditional “last will and testament.” Remember? That’s movie stuff. If you want real protection, you need a living trust that contains all of your assets and a pour-over will to back it up in the event you acquire assets not yet in the trust. Learn more from our living trust explainer.

There’s much more to estate planning than these two tools, but they are universal for most plans for the majority of investors. Take the time you need to research. After all, estate planning is how you control where the rewards of your life’s labor go and provide for the ones you love. They’re worth it.

Future Retirement Health Care Costs Expected To Fluctuate

One of the reasons we save for retirement is because medical costs invariably go up with age. Saving for your own eventual care, even if you’re healthy as a horse now, is wise. But recent projections suggest you may actually want to save a little more. Cost of care is expected to continue fluctuating, and after all, there’s no such thing as too much savings. Here’s what you need to know about how to prepare.

Why Your Retirement Plan Should Include Healthcare Plans

Healthcare is a substantial cost for most of us in our golden years. These costs tend to escalate across all demographics with age. The prudent investor, therefore, should be both informed and proactive.

Consider the wide variety of things you can expect to go wrong as you age. Frankly, we will all need care to some degree. If you’re very fortunate, that period may be confined to the end of your life. But if you’re like most Americans, you’ll likely experience a slower decline in general health. This is simply the price we all pay for living rich, full lives: aging gets us all regardless.

But let’s delve a little deeper into what types of circumstances can influence your personal healthcare costs. The sad reality is simply that those who manage chronic conditions or experience catastrophic events (the sort you’d associate with hefty insurance claims--accidents, sudden events like heart attacks or strokes, etc.) will face challenges on top of those that we all must. Every person reading this has good reason to save more than what seems essential for health care. That said, knowing that costs will be higher (or lower) for you can help you prepare properly and never have to worry about getting the care you need.

What Influences Healthcare Costs?

Health is deeply personal, and often frustratingly beyond our control. Here’s a shortlist of some of the things that determine these costs.

Chronic Conditions.

Known by the insurance world as “pre-existing conditions,” this category can cover a broad range of items. The extent and severity of a person’s health complications is the main factor that will determine costs for health insurance and routine care. Perfectly controlled conditions may even be costly to treat for populations like chronic pain patients and diabetics, who are often dependent on medications and require more frequent doctor’s visits (often with pricey specialists). Even if you’re lucky enough to be 100% able-bodied without so much as high blood pressure, congratulations. But that can change at any moment, as mere aging causes its own health issues.

Sex and gender.

Costs for women and female-identified individuals tend to be higher. One highly comprehensive 2016 study predicted a 30-year-old healthy woman can expect to pay $120,000 more for healthcare upon retirement.

Inflation.

None of us are safe from this one. The simple reality that $100 today won’t be the same as the day you retire is inescapable. Certain vehicles can help protect your dollars from inflation--both your CPA and attorney should be able to give personalized advice on these matters.

While none of us can make perfect predictions, it’s generally wise to estimate costs and figure in a 10-20% “buffer” for the unexpected. Just like when you’re building a pro forma for an investment. Your future care is absolutely a type of investment. Let’s look at some smart ways to plan ahead.

The Solo 401(k): The Healthcare Payment Tool You Didn’t Expect

Building up a retirement savings account sufficiently is no small feat. So it’s completely fair to use every single tool at your disposal. The thing is, most of the tools you can use aren’t going to be advertised as healthcare solutions. The Solo 401(k) is a precise example of this type of tool: underrated, under-used, and underappreciated. Well, by most. You and I are about to know better.

The Solo 401(k) isn’t really that different from your typical 401(k) account. The essential feature that makes a Solo 401(k) a viable healthcare savings vehicle is Checkbook Control. Checkbook Control is finance slang for the ability to make nontraditional investments. While most accounts are going to be confined exclusively to the offerings of the institution in question, this isn’t so with self-directed accounts.

Note: Don’t let terms confuse you too badly here. The self-directed 401(k) is the same thing as the Solo-K. You may see variations in spelling or even fancy verbiage thrown around, but it’s the same type of Qualified Retirement Plan. There are however other self-directed accounts, but they tend to be IRAs. You can learn more about the self-directed IRA LLC and the IRA-Owned Self-Directed Business Trust right here on the Royal Legal Solutions site. These vehicles may also prove to be effective choices for you, as they share many key benefits. Learning about all of your retirement options, time permitting, is always a smart idea.

The solo-K can help you beef up your retirement savings easily because it confers these benefits (among many others):

Flexibility. Solo-K’s may be used alongside other traditional retirement plans.
Remarkably high contribution limits.
Endless opportunities for diversification of retirement dollars.
Tax-deferred and Roth options.
May be used as a part of your real estate business.
May play a role in your asset and creditor protection plan.

Smart Retirement Planning: Your Solution to Future Uncertainty

Amidst both the expected fluctuations and life’s unexpected curveballs, the smart play is to do what you can to get the most out of your retirement savings. Of course, this begins with planning ahead. If you need some general retirement saving advice, check out this resource of tips that can help at any age. But let’s take the time to glance at some methods for saving.

5 Times in Life to Update an Estate Plan

When asked by someone without an estate plan when they should plan their estate, we tend to give a variation of the answer, “Right away.” But updating your estate plan is a little more complex. There are major life events that are critical times to update your estate plan and make any necessary adjustments.

1: You Got Married

Congratulations! But before you tie the knot, you’ll likely want to ensure your intended spouse will be a part of your estate plan. Spouses are often beneficiaries of wills and life insurance and may be listed on titles to shared investments or homes. For this reason, it is particularly important to update your plan if this isn’t your first wedding. You don’t want things going to your ex that is more appropriate for your current spouse. Even for first marriages, your spouse may not be fully protected or presumed to be an heir if the plan omits them.

2: You Had a Child

Kids, accompanied by marriage or not, really do change everything. One massive reason children can affect estate planning is because this documentation lets you dictate guardianship: who gets your children if you and the co-parent both pass away? It’s a situation nobody wants to be in, but one to plan for. Otherwise, the judgment call could be left up to the state. States also have different laws about whether “natural children” are heirs. Keeping your plan current is critical if you want to retain control.

Your children turning 18 also matters. As adults, they can directly inherit assets, and your plan should evolve accordingly.

3: You Got Divorced or Were Widowed

Removing an ex from estate planning documents is one of many legal considerations during a divorce. All changes in marital status, including a spouse’s death, should at least be cause for reviewing if not amending your estate plan. The detail to focus on is where a former spouse may be a beneficiary, and skilled estate planning attorneys can also inform you of other concerns for your unique situation.

4: You Bought or Sold a Home or Other Major Asset

This includes investment properties and is one major reason why estate planning for real estate investors is approached differently. Those with investment properties may consider the living trust and pour-over will, which an attorney can craft to ensure the seamless transition of assets without the need for probate court. A new home of any kind can drive up your estate’s value, but fortunately, asset protection strategies including titling property to a land trust may help prevent this and other potential legal issues surrounding titling.

5: You Got a New Business

Whether you started or purchased the business, understand it’s also an asset. You’ll need to decide who owns the business, and a succession plan is wise for particularly successful and profitable businesses. If you want to make decisions around your legacy without incurring unnecessary probate court fees, updating your estate plan is vital.

When Was The Last Time You Updated Your Living Trust?

For those of you who already have living trusts, congratulations—you are certainly on the right track when it comes to estate planning. But how do you know when to update your living trust?

By the way, if you don’t have one yet, this article is worth a read ...

What is a Living Trust For?

As a real estate investor, you may have many properties that you will pass on to your heirs. The living trust can help you ensure a seamless transition upon your passing. A living trust is an estate planning tool. It may be helpful to think of the revocable living trust as a large lockbox that holds your assets. The trust’s “job” is to hold title for the properties. Estate planning attorneys use living trusts as a way to avoid probate court.

When a living trust is created, a trustee will be named to control the assets for you. You can think of your trustee as the person who has the key to your “lockbox.” Your role is simply to be the beneficiary of your trust. You may direct your trustee to buy, sell, or transfer assets into or out of the trust.

How a Living Trust Compares With a Will

The will may be the most widely recognized estate planning tool, but a living trust is far superior to a will alone. Wills would have to go through probate court, which means your grieving loved ones would be navigating a maze of red tape before receiving anything from the estate.

The living trust allows for the control of the assets to immediately pass to the designated heir, as opposed to getting caught up in probate court by passing through an ordinary will. With this method, you can breathe easy knowing that mortgage payments are made, rents are collected, insurance premiums are paid, etc.

The living trust ensures that your property is not lost or diminished in value, which are both highly likely occurrences if the properties are caught in probate court. It has the added benefit of keeping the value of the home out of the taxable portion of your estate.

Living trusts are easier to modify than wills, but harder to challenge legally. Trusts are also private, meaning using a living trust would remove your name from the public record. You would no longer own the property but retain control as the beneficiary of the trust.

Interested in learning more? Check out our article,Living Trust or Last Will and Testament: Which is Better for Real Estate Investors?

The Ideal Solution: Living Trust and Pour-Over Will

For real estate investors who may be buying and selling assets frequently, it is important to know that you would normally update your estate plan each time you make a significant purchase or sale. This could present a challenge for an active investor with many properties, but that problem can be easily addressed by simply using a pour-over will. The pour-over will passes all property you own into your living trust upon your death.

For the real estate investor, a pour-will pairs well with the living trust to ensure a smooth, private transition of your assets. Using these tools together is a smart move.

Estate Planning is Part of Your Asset Protection Plan

Estate planning is a critical part of your asset protection plan. When you plan your estate, you’re empowering yourself to take control of your legacy.

Living Trust Versus A Will: What’s the Benefits For REI?

Many investors don’t even know how crucial it is to have an estate plan. While planning for the unexpected is uncomfortable at times, it is essential for all of us. Yet the real estate investor has even more reason to be vigilant about estate planning. Whether you own a single investment property or an impressive and costly portfolio, surely you want your real estate assets to be passed onto your loved ones and chosen heirs.

Today we will focus on some common FAQs about two of the most well-known estate planning documents: wills and living trusts. Read on to learn about what these legal documents have in common, what they do differently, and what these tools really look like in action.

If you don’t pick out your heirs, the U.S. government is all too happy to hang on to your hard-earned assets and find a use of their choosing for your valuables. Even investors with no family can likely think of a cause closer to their heart than Uncle Sam. Still, brilliant people with legal access die without estate plans often. Why? We have a pretty good working theory.

Death isn’t fun to acknowledge or look at, let alone admit will happen to us. But we can’t change its inevitability. That part is beyond our control. So, we turn our focus to what we can control. What we can do is take control of our legacy today and ensure our desires will be carried out no matter what.

The benefits of estate planning include giving you power now, while you are alive. Planning gives you the peace of mind of knowing that even if misfortune strikes, your business will live on and your chosen heirs will be taken care of. It takes some of the fear, and the sense of “forever,” out of death.

The Basics: Wills Vs. Trusts

Let’s start at the very beginning. For our purposes, that means making sure we are clear on what these estate planning tools are and what they do.

Breaking Down Wills

There are many different types of wills. We raise the issue to make the point that when most people think of a will, they are usually referring to the most common and easiest type of will for the average person to draft, a variation on the Simple Will. The requirements for and components of these wills are straightforward:

Created when you are of sound mind.
Give a complete list of assets and heirs.
Specify who gets what.
Name an executor to carry out your wishes for you. Choose your executor wisely, and understand their job.

Wills aren’t bad, but they can cause problems when relied upon alone. These criteria may seem basic, but every single one can go awry. Even the first can be challenged after your death. So, let’s look at the living trust to see what it has to offer.

Breaking Down Living Trusts

Living trusts are established by private trust agreements. This type of revocable trust is one you can form today, but deed property titles into for years to come. In this sense, it’s also an asset protection tool. Living trusts also allow you to name a trusted confidant to manage your real estate assets if you ever can’t while alive, say because of a medical emergency. Perhaps most importantly, because this tool avoids probate, your heirs will receive their share far faster with no surprise fees.

Similarities Between the Will and Living Trust

Essentially, each of these options gives you a legal way to direct where specific assets go upon passing. Both also allow for the possibility of naming a guardian for minor children. A will has this option, while a living trust would need to be set up properly (in conjunction with a pour-over will) to achieve this goal.

The similarities end there, however. Let’s take a look at the crucial differences between these tools before exploring which option is best for the real estate investor.

Differences Between the Will and Living Trust

There are many crucial distinctions between the living trust and the will. The differences touch on everything from legal and business differences to the costs you can expect to pay for your estate plan.

Wills must be probated, while living trusts bypass this process. The living trust offers greater anonymity for real estate investors, even after their passing. Your heirs will also benefit from this privacy. Probate court records are public, while trust filings are private. The probate court would never be involved in handling matters pertaining to your trust. Where a will names an executor, a living trust names a successor trustee. While both are involved in administering the estate, your trustee’s actions aren’t in the probate court’s purview.

Wills may be cheaper upfront, but you get what you pay for. The money you “save” could lead to more costly heartache for your heirs, particularly if you truly cheap out and write it yourself. Resist that urge. True, living trusts are more expensive to establish, but you’ll be far more protected. They can’t be contested or held up in probate court for months, even years--a fate all too normal for those who die with only a “Last Will and Testament.” Your heirs won’t have to worry about paying out lawyers and accountants or fighting for their fair share if your living trust leaves no room for ambiguity. This is just one more reason to get professional help for your estate plan.

Which Tool is Best for the Real Estate Investor?

Because of the additional benefits conferred by the living trust, we often recommend that our real estate investor clients use this tool instead of a traditional will alone. While we’ve hit on the basic features, an example may help illustrate the differences in real life.

Example: Meet The Identical Twins With Different Estate Plans

Amy and Caroline are 36-year-old identical twin real estate investors. The twins got started investing together, even splitting profits and losses. They grew their businesses, yet happened to always have the same number of assets, each with the same value.

But Amy and Caroline didn’t do everything exactly the same. Although their financial conditions and portfolios were dead ringers just like the sisters, the women disagreed about how to handle estate planning. The two made their appointments to address the issue the same day. Each sister had five chosen beneficiaries, but neither included the other.

Amy read online that the will is the oldest and most accepted document available, and partially to save money, she used a consultation with a lawyer to draft a will. She spent some time googling a cheap attorney, and found one who agreed to create a document that listed her existing assets. The price was right and she felt secure. “I’m young,” Amy reasoned: “I’ll update it later.”

Caroline, however, is more cautious. She spent more time researching her options and learned about living trusts and estate planning for real estate investors. She spent some time looking for references for an estate planning attorney with real estate experience, narrowed down her candidates, and opted for an attorney who was also an investor. This lawyer spent some time with Caroline looking at her full situation and providing thoughtful feedback. He agreed to form her living trust and advised that she use a pour-over will, a tool which ensured all of her assets would be added to the living trust. She spent more upfront than her sister, but also would not need to come back to update a will (and pay the necessary legal fees) like her sister would. Caroline also took advantage of the lawyer’s estate planning review services, which meant her lawyer ensured compliance and made suggestions twice annually.

What Happens if Tragedy Strikes?

Now let’s see what would happen for our sisters if they were to pass away suddenly. No actual twins were harmed in the making of this example.

Five years after drafting her will, Amy has essentially forgotten about the document. During those years she got married, had two children, acquired three new investment properties, and got busy with life. She is driving to work on an uneventful morning. Out of nowhere, her small sedan is T-boned by an 18-wheeler. She passes away immediately upon impact. Amy’s five-year-old will is her only estate planning document.

First, her will would have to be probated no matter what. Things get darker, though. She listed beneficiaries before her marriage and kids existed, and while there are legal ways to sort these things out, they are expensive and time-consuming processes for her already-grieving family to handle. Further, not all of her assets are accounted for in that will. The investments she had purchased since weren’t listed because the will wasn’t updated, creating yet another issue for the court. Sorting out these details usually means legal and accounting fees are deducted from the estate while the heirs, both listed and presumed, wait. Sometimes they fight. Amy’s family would be in a much better position if she had followed her sister’s lead.

Suppose Caroline also started a family and grew her portfolio in the five years since making her plan. Now let’s suppose she’s fatally struck by lightning. Her heirs won’t be attending probate court like Amy’s, because she used the power combination of a pour-over will, living trust, and closely involved attorney. Her family was included in her trust agreement, and even though her last investment hadn’t been formally listed in her documents before she passed on, the pour-over will ensure all assets went into her living trust for distribution.

You Can Have it All: Using a Pour-Over Will With a Living Trust

While a living trust clearly beats a will alone, the pour-over will combined with a living trust is the gold standard for the vast majority of our clients. The pour-over will is superior to the simpler will solution mentioned above because it accounts for all assets you control at the time of your death. Any you hadn’t added are “poured” into your living trust, offering a smooth business transition option that also takes care of your heirs.

To learn more, check out our article, What Is The Difference Between A Will And A Trust?

Getting Remarried? It’s Time to Update Your Personal Estate Plan

If you’re recently engaged, let us first say congratulations. Remarrying can be an exciting time in life, full of promise for new love. But it is also one of those major life events that can affect your estate plan. Be sure you have your bases covered by following the estate planning tips below.

1. Update Wills and Beneficiaries

Getting remarried often means blending your family. If you have new step children that you wish to include among your heirs, your legal documents should be updated to reflect this. See our article, A Guide to Estate Planning for Blended Families, for more.

If you don’t have a will, get an attorney’s help drafting one now. If you die without one, it’s up to the state to distribute your assets--and tax them--however they see fit. We recommend the use of a pour-over will for real estate investors. This type of will acts in conjunction with a living trust, which we will discuss more below.

2. Maintain a Complete and Current List of Assets

Real estate investors buy and sell major assets more often than the average person. Your estate plan must be updated each time you take either action. But real estate isn’t the only asset that will have value. Include anything with substantial financial value, such as a bank account, as well as items with great emotional value like family heirlooms on your list of assets.

3. Don’t Forget About Power of Attorney

Medical power of attorney dictates who makes medical decisions for you if you are ever unable to. If you do not have this document, or have not updated it since your previous marriage, now is the time to act. Whether you want your new spouse, a child, or another trusted loved one to make medical decisions for you, be sure your power of attorney documents reflect your choice--and that the responsible party knows your wishes in case you are ever incapacitated.

4. Know the Power of the Living Trust for Real Estate Investors

A living trust lets you organize your assets and control how they are distributed. Property may be titled directly to the trust when you acquire a new asset, which is one reason these privately-filed documents avoid probate court. If you have properties scattered across several states, a living trust spares your heirs from the experience of having to probate in each state. Instead, the assets will go directly to the person of your choosing, which also helps lower legal costs.

5. Always Get Help From An Estate Planning Attorney

The estate planning lawyers at Royal Legal Solutions know the importance of proper estate planning for real estate investors. Since we are investors ourselves, and so are the rest of our clients, we know the details that will matter for you and your family. We will also fiercely advocate for your wishes and help you maintain control of your legacy. With proper planning, your real estate business can outlive you. So don’t delay. Schedule your estate planning consultation today.

What George Bush's Recent Death Reminds Us About Estate Planning

George H.W. Bush passed away on November 30, 2018 at the age of 94, making him the longest living President in United States History. His death came a mere eight months after the passing of his wife, Barbara Bush. While his storied life has already shaped the former President’s legacy, his death also reminds the rest of us about simple to overlook yet important aspects of estate planning.

Spouses Dying in Quick Succession Can Create Estate Planning Issues

Cases like the Bush’s, where both spouses die in a narrow window of time, can create issues. Generally, a spouse is the beneficiary of a life insurance policy or retirement plan, and often also an heir. If there is no estate plan, both estates will end up in Probate Court--where questions of how assets will pass, to whom, and in what order can take months or even years to hammer out. In blended family situations where one spouse may have children unrelated to the other’s, things can get especially sticky.

Even where there are no family complications and there is an estate plan in place, wills and trusts may have survivorship requirements. Ask your attorney about this issue when creating your estate plan. Retirement accounts may also be complicated when two spouses die within a short time period. If the surviving spouse does not roll the retirement funds into their account as soon as possible, contingent beneficiaries like children may not receive the benefits.

The Importance of Planning Your Estate Ahead of Time

Now, we do not know or claim to know the details of the former President’s estate plan, though we can speculate he likely did have one. His death can serve as a reminder of the importance of creating and maintaining an up-to-date estate plan.

Real estate investors in particular have specific issues to worry about when it comes to their legacy. Not only do we want to provide for our heirs, but we must also decide who will inherit our real estate businesses. We can’t afford to be lazy on estate planning details. For instance, did you know that you must update your estate plan every time you acquire a new asset? Major life events such as marriage or the death of a beneficiary also call for updates. Fortunately, with professional help, you can stay on top of your estate plan and be certain your legacy is carried out as planned. At Royal Legal Solutions, we offer estate planning services and monthly package options that include regular estate planning updates to help busy investors maintain current plans.

Don’t Try This At Home: Get Help Planning Your Estate From the Professionals

If you’re tempted to put off estate planning, don’t. Make your plans now to ensure your wishes are carried out and that your loved ones are provided for as you see fit. The experts at Royal Legal Solutions are sensitive to the estate planning needs of real estate investors. If you have questions about our estate planning services, contact Royal Legal Solutions or schedule your estate planning consultation today.

Charitable Gift Options Using a Self-Directed 401(k)

Charitable contributions are a popular strategy among the wealthy for lowering tax payments. But this method isn't exclusively for the Michael Dells and Kim Kardashians of the world. Investors from all income levels, including you, can use it too.

But even savvy investors don't always know that charitable gifts can be made from retirement accounts. So whether you simply want to donate money from your 401(k) to a cause close to your heart, save on your taxes, or both, this article is for you. Read on to learn more about your options for giving charitable gifts with your Self-Directed 401(k).

Why You Should Consider Giving Your Retirement Funds to Charity

The funds in IRAs and 401ks are among the most heavily taxed that the average investor will hold, and redirecting them towards charity can make a meaningful difference. Charitable donations help you save money by reducing your taxable income. This is why many highly wealthy individuals give in large quantities. Sure, many of them are philanthropic at heart, but there is also a distinct tax advantage to donating. The higher your taxable income, the greater your tax responsibilities when Uncle Sam comes around to collect his bills.

Giving to charity also qualifies you to receive a Charitable Gift Tax Credit. Literally anyone can take advantage of this. Generally, the credit is computed by taking the market value of an item or actual amount of cash donated, then subtracting the percentage of your tax bracket.

Strategic donations can lead to thousands returning to your pocket. Of course, there are limits: you cannot donate more than half of your income in a given year. Similarly, for these benefits to apply, you must itemize each donation.

What Options You Have For Giving to Charity

You're likely already familiar with some types of donations. Others are less obvious. Here are some, but not all, of the many methods you can use to your taxable income to a charitable cause:

Real Property Gifts (includes real estate, stocks, etc.)
Trusts (Charitable Remainder Trusts, Charitable Lead Trusts, and more)
Charitable Sales
Deferred or Traditional Charitable Annuities
Life Estate Gifts
Retirement Plan Asset Gifts (including the Self-Directed 401(k) plan)
Life Insurance Gifts

Which Options Are The Most Beneficial?

While any of these options is certainly beneficial and altruistic to the receiving organization, smart investors may be wondering which will benefit their own bottom lines. You may be surprised to learn that retirement and life insurance donations are among both your strongest and lesser-known gift choices.

Many potential donors do not know much about life insurance or retirement plan asset gifts simply because charities are less likely to request them. Many nonprofit organizations have a need for immediate cash that is simply not addressed with these types of donations. They are nonetheless useful for the charities--and you.

Ways to Give To Charity From Your 401(k)

Below, we'll describe the two simplest options for donating to causes you care about with your 401(k) funds.

Option 1: Donate Directly From the Plan

You can liquidate an asset (or several) held by your plan, then directly donate the funds to the nonprofit group or cause of your choosing.

Option 2: Name a Charity as a Beneficiary of Your Plan

Naming the charity of your choosing as a beneficiary works the same way as designating any other beneficiary. However, this option has the added advantage of allowing plan funds to pass through to the charitable organization completely tax-free. If you have tax-deferred funds, this is actually the smarter expense than passing those same funds on to your heirs.

Your heirs would have to pay the taxes, but the charity does not. Though this may not directly benefit you as much, it is certainly the most efficient use of money that would otherwise be gifted to the U.S. Government. That you can control the funds by selecting any qualifying charity means you have the luxury of supporting a cause you truly believe in.

A Land Trust Vs. a Living Trust

End-of-life matters are not always easy to think or talk about. However, making plans now, while you are healthy enough to do so, can save your loved ones time, money, and heartache.

The last thing anyone wants to do is lose a loved one and then be immediately buried in legal matters regarding their possession, estate, and finances. If you have been considering end-of-life plans, you may have heard the terms “living trust” or “land trust”. These trusts help ensure your loved ones get the assets or properties you want, while bypassing the complex, often expensive, legal process known as probate. To learn more about these trusts, keep reading.

Understanding The Living Trust

A living trust is one that is created during your lifetime. (As the living trust owner, you are known as the trust settlor or grantor.) A designated trustee manages these living trusts. This trustee holds legal possession of any assets or property that are included in the trust. A trustee has the duty to manage the trust in accordance with the best interests of the beneficiary (or beneficiaries). The trust settlor, or grantor, designates the trustee. Upon the grantor's death, the assets and properties will flow to the beneficiary without having to go through the court system. (This is different from a will, which will need to go through court before it can be distributed to your loved ones.) A living trust can be “irrevocable” or “revocable”.

What Is A Revocable Trust?

With a revocable trust, the granter can appoint himself or herself as the trustee. This allows them to take control of the assets contained in the trust. By doing this, the assets within the trust remain a part of the grantor's estate. This means that, if the value of the estate taxes exceeds that of the estate tax exemption at the time of death, taxes may be owed. In a revocable trust, the granter, acting as the trustee, can amend the trust and the rules at any time. They can freely change beneficiaries at any time. They can also undo the trust at any point as well.

What Is An Irrevocable Trust?

By comparison, in an irrevocable trust, the grantor is not the trustee. Because of this, they end up relinquishing some of the control over their living trust. When a trustee is designated for an irrevocable trust, they become the legal owner of the assets or property within the trust. (This reduces the taxable estate for the granter.) With an irrevocable trust, the named beneficiaries are hard to change.

Understanding The Land Trust

A land trust is a type of living trust. However, unlike a living trust, which holds any type of asset, a land trust can only hold real estate or related assets. This means a land trust can hold physical properties, notes, mortgages, air rights, and other real estate related assets. With a land trust, the property owner is the beneficiary. Because of this, they are able to direct the management of the property. (The trust agreement or deed would dictate the level of control a beneficiary has.)

The property owner is also able to retain all rights in regards to the property. This includes the right to freely develop, rent or sell the property contained in the land trust. Land trusts are typically considered to be revocable trusts. As such, they can be amended or terminated at any time. I wrote more about land trusts vs LLCs for asset protection here.

Benefits of a Land Trust

There are plenty of benefits when you create a land trust. Perhaps the biggest benefit, however, is the ability to hold property anonymously.

How is this possible? The property contained within a land trust is listed as the name of the trust in public records. This helps to hide your full net worth from the public eye. As a result, it can decrease the potential for lawsuits and help with property negotiations.

Whether you personally own it, or your Series Limited Liability Company (LLC) does, a land trust inherently protects your property investments. In addition to this, as a type of living will, a land trust avoids probate court. This means you do not have to go through court in order to manage, rent or sell the property contained within the land trust. (This is because the property contained in the land trust are considered personal property. This is similar to the idea of owning corporation stock.)

Get the Most Out of Your Living Or Land Trust Agreement

It is important that your trust agreement should give you the rights you expect, without hidden clauses. When you designate a reputable “nominee trustee”, such as Royal Legal Solutions, you can rest assured that your trust agreement contains everything you need it to. In fact, when Royal Legal Solutions is designated as your “nominee trustee”, the filing process is not only easier. But it also ends with our firm resigning as the trustee and transferring the land trust back to you as the sole trustee. What does this do for you? In doing this, Royal Legal Solutions will be the trustee of record, protecting your anonymity. You will retain all rights related to the property, including the ability to sell it. (You will need the trust agreement to successfully sell a land trust property.)

Royal Legal Solutions, Your Ideal Living Or Land Trustee

At Royal Legal Solutions, we aim to protect your assets. As your nominee trustee, we ensure your trust agreement reads exactly as you need it to. We do not include hidden clauses that will bar you from your rights to the property. We understand the importance of asset protection and anonymity. If you would like to schedule a consultation with Royal Legal Solutions, please contact us today. After all, you invested in the property and deserve the full benefits a land trust can provide.

Estate Planning Opportunities With a Self-Directed Roth IRA LLC

Roth IRAs, while primarily used for the purposes of retirement, can also be useful for estate planning. The main difference between a Roth IRA and a traditional IRA is that distributions from a Roth account are not taxed. Contributions to the Roth are taxed.

Furthermore, traditional IRAs may be converted to Self-Directed Roth IRA accounts. The question then becomes: How can you use this to your advantage in terms of estate planning?

Understanding the Estate Tax

There’s no way around the fact that an IRA, regardless of the kind, is included as a part of the owner’s estate. When the IRA is inherited, the beneficiary is required to include each distribution as part of their yearly income tax. The distributions can be stretched out for the individual’s entire life expectancy, but yearly distributions are mandatory.

Estate Planning Benefits of Converting to Roth IRA

If you decide to convert a traditional IRA to a Roth IRA, you will have to pay taxes on the amount going into the account, since Roth accounts tax contributions and not distributions. You also don’t have to convert the entire account over to the Roth, but whatever you convert will be taxed, so bear that in mind.

Nonetheless, there are significant benefits to converting to a Roth in terms of estate planning. Some of the major ones are:

Distributions Are No Longer Taxable

You’re going to be basically paying off the taxes on behalf of those who will inherit the account when you convert it to a Roth. In fact, you can leave this as a notice upon your passing to pay off the taxes for the conversion and that would reduce the amount of taxes you would pay on your estate. Each time your beneficiaries take a distribution, the money would not be taxed.

You Are Not Required to Take Roth Distributions During Your Lifetime

With a traditional IRA, you must begin receiving distributions once you hit 70 ½ years of age. Not so with a Roth IRA.

Growth Is Not Taxable

Traditional IRAs have tax-deferred status. Roth IRAs are essentially tax-free. The longer the IRA has had time to mature, the better the potential payoff. The growth of the IRA is tax-free and so are the distributions, giving you and your heirs non-taxable income for the remainder of your lives.

It’s a Great Time to Convert

The new Tax Cuts and Jobs Act has made converting from a traditional to Self-Directed Roth IRA historically cheaper than it’s ever been before. It’s a great time to take advantage of low tax rates in order to save money on the cost of converting.

Executing a Stretch

To execute a stretch, simply pass the IRA to the youngest person in your family. A good example is a grandchild. Since the value of the distribution is prorated over the course of the child’s life, it stands a good chance of being less than account’s annual earnings. Another option would be leaving the Roth IRA to a spouse who would not be required to take any distribution at all. When the spouse passes, the Roth can then be handed over to the youngest child in the family.

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?

You can transfer your assets privately.
Asset transfers are not a matter of public record.
You can dictate what happens to your property if you’re incapable of managing it yourself.
Living trusts are easier to change than a will.
Living trusts are more difficult to contest than a will.

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.

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.

You Can Use Your Self-Directed IRA To Buy A Retirement Home. Here's How.

In my experience, a retirement that you are in charge of makes for a better retirement than one that is financially uncertain.

If you are starting to think about where you’ll be spending your retirement, you’ve probably been growing your IRA for some time. If real estate investing is what has gotten you to where you are now, you might want to think about buying a retirement home from your self-directed IRA, also known as a SDIRA or solo IRA.

You can use a self-directed IRA to purchase your retirement home before your loving children dump you on the side of the road and run off with their inheritance. Here's how.

What To Know About Buying Your Retirement Home With Your SDIRA

This is one of the great reasons to go with self-directed IRA. Traditional IRAs can hold investments, but you can’t buy a home with them. With a self-directed IRA you can buy an investment property and distribute later for personal use. This is black-belt level stuff. You can rent the property as an investment, so you are still making money off of it until you are ready to retire and move in.

To do this you need to purchase the property through your IRA, which will own it as an investment until you retire. When that time comes, you will distribute the property via title transfer from your self-directed to your traditional IRA.
This makes your retirement home a retirement benefit.

Beware of Prohibited Transactions

You need to avoid prohibited transactions. You cannot use the property. Your family cannot use the property. You do not own the property. It is the IRA’s property. It rents the property; you don't.

The rental income accrues in your account because, I repeat, your IRA owns the property. You can lease the property, of course—that’s how investments work. They make income. You will have to lease it to someone outside the family until it’s been distributed, but after that, your dream home is all yours.

Be Smart About Distributions and Taxes

When you take control of your retirement home, it is an “in kind” distribution and it means taxes are due for traditional IRA’s. If your future retirement home was appraised at $250,000, you will receive a 1099-R for $250,000 from your custodian upon distribution.

Distribution taxes can be high. You might prefer to take partial distributions over time, to spread out the pain, but it’s going to sting no matter what you do and this can be a trap. You need appraisals every year for fair market valuation. These valuations cost money. Whatever you decide, you and your family cannot use the property until it has been 100% distributed.

As with most things retirement related, if you take a distribution before you are 59½, you’re going to pay a penalty. Ten percent is stiff. Be patient.

Do Your Homework Before Buying

This process of home ownership isn’t going to work for everyone. It takes a lot of work, but most things worth doing are a lot of work, including putting yourself in a position to purchase a retirement home in the first place. It is possible, but if you self-direct your IRA investments, make sure you understand relevant investment laws and tax structures.

You need to be like a Boy Scout when it comes to retirement planning. Be prepared.

4 Pet Law Facts Animal Owners Should Know

I once owned a pit bull named Jackson. He went down a bad path. He was a product of public obedience school. I was too busy with my legal career to notice that Jackson was out on the corner hustling with local thugs.
Every night I went to bed thinking: "Please, don’t make me financially responsible for my pet’s poor life choices. Please."
There are a lot of situations where pet law can get rough. Pet custody is fiercely contested in divorces. Your pet might go down a bad road like mine did. And heaven help you if yours commits the greatest crime in the canine criminal code: biting somebody. You will also have to make provisions for your animals after you’re gone.
Pets are beloved family members, but there are some legal realities that you need to be aware of if you are a pet owner. To that end, here are a few Pet Law fundamentals.

1. Pets are property, and "duds" happen.

If life sells you a lemon, trade it in for an orange. Or at least something that isn't dying. It may not be the kindest idea, but if you purchase a pet with an illness or a disease, you can return it for a full refund in 21 states. Then you just have to live with the knowledge that Snowball is going to be left on a rock to be consumed by an eagle. Circle of life.

2. Laws regulating the treatment of pets vary from state to state.

All laws regulating pet care can be reduced to one Elvis Presley maxim: don’t be cruel. Don’t leave you dog outside in a hurricane. Don’t leave them in a hot car. And of course, no dog fighting. I thought this one was common sense, but it seems necessary to say it out loud because Michael Vick did 18 months for it. If dog fighting gets you off, you might also want to consider a psychiatrist. You’re a sadist.

3. Pet custody issues are real: understand them.

Look, you love your dog and so does your wife. You might love it more than your car but less than your boat. You might love it more than your children but less than your dinner. To be frank, the law doesn’t care. Pets are considered property no matter how meaningful deep attachment to them may be.
So, in the event of a divorce where pet ownership is in dispute, the court has to consider a number of factors similar those that would be considered during a child custody hearing. Of course there are differences, since you legally own your dog. You don't own your kids. That’s why you can’t put them to work in your salt mine.
Still, the rubric for pet custody and children is similar. The court considers who took care of the pet and who can pay for it. If it is a family pet, it will likely end up wherever the children go. Either way, this is going to be in the judge’s hands. If pet custody is important to you, prepare your case.

4. Include your pet in your estate plan.

So, you’ve been dead for a week. Your dog has finished mourning at your grave and now he needs to eat. Who is going to feed him? If you want your pet taken care of after your passing, you can state in your trust or will what provisions you are leaving behind for its care. You can create a "pet trust" to outline the care of your pet after you are gone.

There is good chance there is someone in your life who will take the pet for free because generally speaking we all no at least one person who isn’t completely heartless. If you don’t, I’m sorry that you are dying alone, but cheer up! You can see to your pet’s care either way. Leona Helmsley left millions of dollars to her dog. I mean, none of it was spent on her dog, but if the dog one day developed the powers of speech through the integration of silicon-based microprocessors and the carbon-based canine brain, he might say something like, “You know what I want to do? I want to take LADY to TONY’s for a nice plate of spaghetti.” If that were to happen, TRAMP could afford to take his girl for a nice dinner and a bottle of Chianti.
If you want your pet to fill the void left by your absence with a jettsetting, playboy lifestyle and a solid gold grill, you can leave them your entire estate. Tony will appreciate the business.
Do you have questions about pet ownership or pet law? Fire away in the comments below. Better yet, let Royal Legal Solutions help you. Whether you want to protect a show dog or racehorse as an asset or incorporate your emotional support peacock into your estate plan, we've got you covered. Our nonjudgmental, empathetic attorneys are pet parents themselves. Schedule your consultation today.

Pet Ownership Laws & How They Can Bite You In The Assets

I once owned a pit bull named Jackson. He dropped out of obedience school and went down a bad path. I was too busy with my legal career to notice that Jackson was out on the corner hustling with local thugs.

Every night I went to bed thinking: "Please, Lord. Don’t make me financially responsible for my pet’s poor life choices. Please."

There are a lot of situations where our furry and feathered friends run afoul of pet ownership laws. Pet custody is fiercely contested in divorces. You will also have to make provisions for your animals after you’re gone.

Your pet might go down a bad road like mine did. And heaven help you if yours commits the greatest crime in the canine criminal code: biting somebody.

Pets are beloved family members, but there are some legal realities that you need to be aware of if you are a pet owner. These legal risks also may apply if you are a landlord or property owner and your tenant's dog bites someone. To that end, here are a few pet law fundamentals.

Laws regulating the treatment of pets vary from state to state

All laws regulating pet care can be reduced to one Elvis Presley maxim: don’t be cruel. Don’t leave your dog outside in a hurricane. Don’t leave them in a hot car. And of course, no dog fighting.

I thought this one was common sense, but it seems necessary to say it out loud because Michael Vick did 18 months for it. If dog fighting gets you off, you might also want to consider a psychiatrist. You’re a sadist.

Whether you're a dog owner or a property owner with "animal-friendly" policies, know the laws regarding animal treatment where you live and do business.

Pet custody issues are real: understand them

Look, you love your dog and so does your wife. You might love it more than your car but less than your boat. You might love it more than your children but less than your dinner.

To be frank, the law doesn’t care. Pets are considered property, just like any other asset, no matter how meaningful or deep your attachment to them may be.

So, in the event of a divorce where pet ownership is in dispute, the court has to consider a number of factors similar those that would be considered during a child custody hearing. Of course there are differences, since you legally own your dog. You don't own your kids.

Still, the rubric for pet custody and children is similar. The court considers who took care of the pet and who can pay for it. If it is a family pet, it will likely end up wherever the children go.

Either way, this is going to be in the judge’s hands. If pet custody is important to you, prepare your case.

Include your pet in your estate plan

So, you’ve been dead for a week. Your dog has finished mourning at your grave and now he needs to eat. Who is going to feed him?

If you want your pet taken care of after your passing, you can state in your trust or will what provisions you are leaving behind for its care. You can create a "pet trust" to outline the care of your pet after you are gone.

There is good chance there is someone in your life who will take the pet for free because, generally speaking, we all know at least one person who isn’t completely heartless.

If you don’t, I’m sorry that you are dying alone, but cheer up! You can see to your pet’s care either way. Leona Helmsley left millions of dollars to her dog.

If you want your pet to fill the void left by your absence with a jettsetting, playboy lifestyle and a solid gold grill, you can leave them your entire estate. Tony will appreciate the business.

Don't Get Left Holding The Bag If Your Tenant's Dog Bites Someone

What happens when your tenant’s dog bites a neighbor? Generally, the dog owner is the one liable for injuries.

However, there are instances in which the landlord or property owner can be legally responsible. For example, if the landlord has been made aware of a dog having an aggressive streak and failed to take appropriate measures, he or she could be facing a lawsuit.

Remember: One lawsuit can wipe your real estate investments if your investing business is established as a sole proprietorship. It may be a legal and easy way to structure your business, but it does little to protect you and your assets. The neighbor’s lawyers can see all of your investments, and you can be sued for everything you have.

It doesn’t matter if you’re just starting out in property investing or if you have been doing this for decades, you can keep more of what you earn through legal tax strategies and entity structures that shield your assets from unexpected lawsuits.

Interested in learning more? Read Renting To Tenants With Dogs: What Landlords Need To Know About Liability and Dog Bites and Landlord Liability: Know Where You Stand.

Wrapping It All Up

Most lawyers will give you cookie-cutter advice. You should learn from lawyers who are also property investors and who know how to protect you from any opportunistic lawsuits while making sure you pay no more tax than you really need to. Find someone who can legally structure a range of real estate investments to make sure your real estate investments or business are protected from unfair taxes or lawsuits.

Do you have questions about pet ownership or pet law? Fire away in the comments below. Better yet, let Royal Legal Solutions help you. Whether you want to protect a show dog or racehorse as an asset or incorporate your emotional support peacock into your estate plan, we've got you covered.

Finding a Trustee For Your Estate Plan

Finding a trustee for your estate plan is tricky. If you choose someone who isn’t up to the task, you won’t be around to correct them.

On the surface, the job is simple. You name which assets go to whom and under what conditions. The trustee just has to execute. So, as with any trust designed to protect your investments, you need a trustee you can, well, trust. You may also want to see our Trustee Vs. Executor article.

In order to pick the right person, consider the following:

What Will My Estate's Trustee Do?

The trustee will make the funeral arrangements with the help of the family. The hardest part about this is managing a grieving family. If your son or daughter doesn’t do well with grief, you may want to consider someone else.
Your trustee will inform your family members and your heir of your estate plans. This is just like in the movies where the deceased leaves behind a video. The trustee puts in the video and the eccentric old billionaire announces that to get his money you have to do something hilarious like defeat his greatest enemy in mortal combat, or solve a terrific riddle that leads you to a treasure buried on an island off of Nova Scotia. No? Maybe that’s just my grandmother, who wasn’t a billionaire, but she was crazy.
Your trustee pays people. Dying is expensive. Make these arrangements ahead of time. By the time your trustee steps in, all he should be doing is signing checks in accordance with your carefully laid plans.
After the dust settles, the trustee determines what assets you still have and how to distribute them. Might be a good idea to include “well- organized” on your list of desirable trustee qualities. With that in mind, you should have selected a beast of a bean counter to execute your will. Someone meticulous, organized, and financially sound. It won’t hurt if they’re funny either. Your family might need a laugh while they divide up what remains of your life in the days and weeks after your death.

Now that you have found a trustee who can educate and entertain, you need to make a plan for your estate. Once again, you need to choose the right trustee for the job.

Here are a few things to consider.

How Big is Your Estate?

If it’s not extremely large, you can probably entrust its distribution to a family member. Unless of course merciless thieves populate your family, in which case you may need outside help. Sometimes family member receive a small honorarium for their services, but this job is largely pro bono. That’s right, you can keep taking advantage of your family even after death.

Now that’s a haunting.

When an estate is worth over 10M, you may want to name a company or a bank as the trustee. Absolute power corrupts absolutely and every family has a Mr. Burns buried somewhere, just waiting to get their hands on the cash so they can “release the hounds."

If you appoint a company or bank, this will cost…a lot. This means it’s only practical for larger estates. It’s also a lot to hoist off on your daughter, even if she is majoring in finance.

You may also want to appoint a non-family member or friend as a trustee simply so that your estate doesn’t tear the family apart. It can get ugly when one family member is dividing up wealth amongst the others. See: KING LEAR.

Does Your Trustee Have Solid Financial Skills?

This one should seem obvious, but a lot of people make posthumous financial decisions with their heart instead of their head. Whether it’s your wife, your child, or a friend, you need to make sure that your trustee is organized, responsible, and financially sound.

What Are Your Family Dynamics?

Families are made up of people and people get into disagreements. They are flawed units made up of flawed people. Every gold digger and delinquent in the world belongs to somebody’s family. If you have any in yours, keep them away from your finances when you’re gone.

Are You Compensating Your Trustee?

Generally, family members act as trustees without compensation, but you can leave them a little something for their trouble. A little bonus out of the estate might motivate them to do a better job. You’re son also tends to do a better job on the lawn when he’s receiving an allowance.

Conflict of Interest

If you are naming a child as a trustee, you are probably naming them as an heir as well. Don’t sweat this one too much. The trustee is bound to the terms of the trust, so if you are thorough, there is very little that can be done to abuse the trustee position for personal benefit.

Co-Trustees

Sometimes it’s important that several people are trustees. Once again, family members are people, and people are petty. You don’t want to bruise egos that are in the middle of grieving.

Multiple trustees are fine, but make sure that you are specific about authority and responsibility. Your death might leave a financial rat’s nest. One monkey will take long time to untangle it. If you involve multiple monkeys you might turn your funeral into a mud-slinging contest. When you're estate planning, you can be the circus ringleader who prevents these issues.

Most people will name a child as trustee. Siblings and close friend of the family are common choices where the children are too young. Keep in mind; this is more than just the distribution of your wealth. This is the evolution of your legacy. Make sure you have chosen the right captain to steer the ship.

Take care of your family’s future. Choose a capable trustee. For much more information and a look at things from the trustee's point of view, read up on trust executor duties.

DIY Estate Plans: Three Of The Mistakes To Avoid

Normally when you think "Do It Yourself" you might imagine painting your house or a trip to the store. But now you can also plan your own estate from the comfort of your own home. Thank the internet. Not only is this cheaper, but it's also more convenient.

However, this increase in affordability and convenience has caused disasters for many families. "Do It Yourself" estate plans often fail to provide the kinds of benefits and protections that you would get in a well drafted and planned estate.

And I'm not just saying that because I'm an attorney. The same mistakes come up over and over when people create wills and other documents without legal counseling.

3 Most Common Mistakes Found in DIY Estate Plans

1. Improper Signatures in Wills

Most states require the signature of the person creating the will as well as two witnesses to the will. The only exception to the two witness requirement in most states is hand written wills.

Failure to adhere to the signature and witness requirements invalidates the entire will. It doesn’t matter how good it looks or how many terms you included. If the signature and witness requirements are not followed, then the will is invalid.

2. Failure to Fund The Trust.

Many people who create a revocable living trust (AKA a "trust") on their own don't fund the trust with the assets from their trust. Funding a trust means that you actually put the assets you want to be controlled by the trust in the name of the trust.

Let's say you want your home to be subject to the terms in your trust. To do this you would need to deed the home out of your personal name and into the name of the trust.

If the property is not deeded into the trust it falls outside the trust terms and your heirs will need to go to probate court to get a judge to approve any transfers of title to the property following your death.

As for stock or LLC ownership, those need to be transferred into the trust. And for insurance, investment, and savings accounts, those should be put in the trusts name or the trust should be listed as a beneficiary.

Note: Failure to properly fund your trust will lead to your heirs going to probate court.

3. The General Forms May Not Address Your Unique Situation.

Most families have at least one unique situation to their estate that is not covered by standardized documents found on the web. One situation that would be hard to deal with in a will is when you have a child who is financially irresponsible while the rest of your children are not.

Or, maybe you have an estate that has more debt than assets, in which case you would need to structure your estate plan to leave as little money as possible to the creditors.

More "unique situations" include you having assets in multiple states or being married to a spouse with children from a prior marriage.
The list could go on and on but these unique situations are rarely handled properly when you’re doing your estate plan on your own.

Solution: Get Help With Your Estate Plan From an Attorney

My suggestion is that, if you've completed an estate plan the DIY way, consider at least having a lawyer look at it to make sure what you have down is correct in the eyes of the law. Doing so will probably save your heirs and family a few court dates.

Disinheriting Your Heirs: Your Legal Options

Disinheriting an heir is something most of us hope we never have to do. It’s sad, but it happens. Sometimes you grow estranged from an heir. Other times, the heir may be on a path to self-destruction that you don't want to aid and abet.
Not all circumstances are this dire. Occasionally, an heir surpasses you financially so they won’t benefit as much from an inheritance as the family artist who is still paying off his American Studies degree.
Whatever your hilarious or tragic reason might be, removing an heir from your estate is fairly straightforward. Emotionally, this move can be devastating to your personal life and tear your family apart. But legally it’s a piece of cake. The following will outline the disinheriting process, but also present legal alternatives to disinheriting.

Why You Will Need to Legally Disinherit An Heir

Unless you specifically state otherwise in a legally binding document, the state is going to assume that you intended your spouse, and then your children to be your heirs. You know, because they assume you love your family. If you think about it, that is the appropriate default setting.
So, if you want to cut an heir out of an inheritance you’ve got to really mean it. You can't undo this move from beyond the grave.
It is important to complete an entire list of your children in the estate plan and to specify any child who will not be an heir. This will make for a wonderful and dramatic moment suitable for a movie:
The estranged youngest son shows up on the day of his father’s death. After comforting his mother and arguing with his brother, his father’s will is read aloud in father’s study. As the grieving family gathers around, the executor reads in a loud, authoritative voice: “…and to my youngest son Samuel, I leave nothing.”
The son lowers his head. His sister tries to comfort him. He dashes from the room. It’s the sweetest revenge of all: revenge from beyond the grave!
In all seriousness, I know what a tragic situation disinheriting can be. That's why I'm going to share another, less final option below.

What To Do If You Don't Want to Disinherit Your Heir: Use Stipulations in Your Will

If you want to leave something for a lost or wayward child, you can always attach a few strings to an inheritance. In this way, you take a family tragedy and turn it into a hilarious, heart-warming comedy.
Now, you cannot just attach any stipulation you can think of to an inheritance. Everything has its limits. For instance, you cannot ask an heir to commit a crime. You cannot subject them to anything torturous, no matter how personally entertaining you might find those posibilities. If you want to make your heir miserable, you’ll have to double up on the emotional torture while you’re still alive. Disinheriting isn't the best option for haunting beyond the grave. Not that we recommend a life spent in resentment for anyone.
You also cannot ask an heir to divorce their partner. This topic is kind of a "fan-favorite," and comes up all the time. Most of us tolerate our children, but you may not relish the prospect of sharing your money with your money-grubbing in-laws. Nonetheless, most courts view such a request as a violation of public policy because it promotes divorce.
We'e previously covered how to use wills and trusts instead of disinheriting your heirs. I recommend you read that as well if you're considering this process.

Why You Need a Lawyer's Help With Estate Planning for Your Heirs

You should talk to a lawyer about what kinds of stipulations you can place on an inheritance. You might demand that your heirs do something with their lives, from maintaining stable employment to educating themselves, before they can access what you leave behind. This will teach them to fish for themselves before you give them all of your catch.
If you need help disinheriting, adding stipulations to your will, or otherwise planning your estate, contact us today. At Royal Legal Solutions, our experts can help with all phases of the estate planning process.

How to Get Out of Annuities

Annuities promise some pretty amazing things including a lifetime of income for you and your partner. They also carry some very sizable fees. There are some benefits, such as no maximums on annual contributions and tax deferral, but they aren’t right for a lot of investors.

What is an Annuity and How Do I Get Out of One?

An annuity is a contractual agreement with an insurance company. You invest money with the company and they agree to pay you a specific amount of money over your life. Like most investments, you give up some money now and the insurance company will pay you later.
Most people who own an annuity with an IRA are seeking a new investment plan for those retirement dollars. Dumping annuities is harder to do than selling mutual funds or stocks. Which is a problem for those people who are realizing that their annuity isn’t working for them they want had hoped.

Cancelling Annuities: Beware the Surrender Penalty

You can cancel your annuity, but will be subject to a surrender penalty. There is no way around it. You get penalized if you take out your investment early, so short of taking a hefty financial hit, you have to wait for the time to elapse. During this surrender period they penalty usually will go down. It can as high as 10% at ten years, but the penalty will decrease by 1% a year until it reaches 0. Like so many things retirement related, you may have to practice some patience again unless you think an alternative investment is really worth taking the loss.
If you do bite the bullet and cancel, your funds need to stay within your IRA to avoid taxes and penalties with the IRS. You could get smacked with a double whammy here so keep that money where it’s going to grow.
A lot of people have found themselves stuck with annuities that aren’t working for them. It’s not an easy choice to make, but if you think it’s worth it, you can get out. Follow these tips to mitigate the loss if you want to increase the return on your investment.

Bottom Line: Know What You're Investing In

In the future, make sure you understand an investment before you make it.
If you're unsure of an investment, there are a number of questions to ask about potential investments. Doing your homework can save you a lot of money and grief. When in doubt, get an opinion from a qualified expert now so you won't regret your investment later.

IRA Rollovers, Explained

An IRA rollover is a transfer of funds from one retirement account a traditional IRA or Roth IRA.

IRA Rollovers are defined as tax-free transfers of retirement from one type of investment account to another. Rollovers were originally introduced to increase the mobility of qualified plan funds for employees moving from one job to another.

You can find the basic provisions governing rollover transfers here. These provisions cover transfers from one IRA to another, transfers from qualified pension, profit-sharing, stock bonus, and annuity plans to IRAs, and transfers from IRAs to qualified plans.

There are a few rare exceptions to the rollover rules. For example, in certain situations, an IRA can make a rollover distribution to a health savings account (HSA).

In other words, if you receive a distribution from a qualified plan (such as a 401(k)), you might decide to put some or all of the distribution amount into an IRA. The IRA that receives the qualified plan distribution is called a rollover IRA.

You can do this either through a direct transfer or via check. If you do a rollover via check, your custodian will write you a check, which you will then deposit into the other account.

How Often Can I Do a Rollover?

The privilege of rolling over from IRA to IRA may be exercised only once in a 12-month period.

Can You Rollover Funds From a Traditional IRA to Another Traditional IRA?

Yes, as long as the money being moved is withdrawn from your old account and deposited in another account within 60 days. Failing to follow this rule can cause your rollover to lose tax-deferred status and cost you big time.

This rule operates on an all or nothing basis. The entire amount received from your old IRA must be transferred to the designated IRA. If you pocket anything, the rollover rule does not apply, and everything received from the old IRA, including any amount transferred to another IRA, is treated as a taxable distribution.

What If I'm Transferring Property That Isn't Money?

If property other than money is received from your old IRA, that property, (not substitute property of equal value or the cash proceeds of the property's sale), must be included in the transfer to the new IRA.

Note: According to our friends at the Tax Court, the rollover contribution must be of cash if the distribution is in cash.

Can I Rollover Funds From a Qualified Plan to a Traditional IRA?

Yes. A qualified plan (or annuity participant) can roll over any distribution other than a distribution that:

Is part of a series of payments over a period of at least 10 years
Is a distribution required by the minimum distribution rules.
Is a hardship distribution.

Note: An employee's surviving spouse may also roll over a similar distribution received on account of the employee's death.

Can a Traditional IRA be Rolled Into a Qualified Plan?

Yes. Within 60 days after the distribution, an IRA can be rolled into an eligible retirement plan for the distributee's benefit.

The term “eligible retirement plan” includes:

Qualified pension.
Profit sharing.
Stock bonus.
Annuity plans.
Tax deferred annuities.
Eligible deferred compensation plans maintained by state and local governments and their agencies.

A rollover contribution must include the entire amount received in the distribution, but it may not exceed the portion of the distribution that, in the absence of the rollover, would be included in the distributee's gross income.

Can I Rollover a Traditional IRA I inherited?

No, usually. A taxpayer whose interest in an IRA is as a beneficiary of the person who created the IRA is usually denied the privilege of rolling over tax free from the IRA to another type IRA or a qualified plan or tax deferred annuity.

Rare exception: a surviving spouse may roll over to another IRA but not a qualified plan.

So why isn't this usually allowed? Because the tax allowances for IRAs (including an IRA’s tax exemption) are intended to encourage saving for the retirement of the contributor and surviving spouse.

Blame Congress. They're the ones who decided it was inappropriate to allow the tax exemption to be prolonged by rollovers after the contributor has died and the account has passed into the hands of a person other than a surviving spouse.

Are There Reporting Requirements For Traditional IRA Holders?

Yes. But don't worry, it's not that bad! (Hopefully you have someone else doing the paperwork for you.) Individuals maintaining IRAs and surviving beneficiaries under IRAs must usually file an annual information return on Form 5329.

Also, an individual maintaining an IRA must make an information filing for each year in which a nondeductible IRA contribution is made or a distribution is received from an IRA.

The filing, which must be included with the individual's return for the year, must disclose the following:

The amounts of the non-deductible contributions for the year.
The distributions received from IRA's during the year.
The total balance in all of the taxpayer's IRAs at the end of the year.
Other information the Treasury might require by regulation (this varies).

What Will The IRS do if You Fail To File Properly?

A $50 penalty is assessed for not filing, unless you can justify why you didn't. Also, because non-deductible contributions are recoverable tax free upon distribution, the IRS will want $100 if these contributions are overstated in the return and you, the taxpayer, cannot justify the overstatement.

I hope this article answered any questions you may have had. If you have any questions about IRA rollovers feel free to ask me, I'd love to help you.

Should You Convert Your IRA or 401k to Roth?

Are you thinking about converting your IRA or 401k to a Roth? Doing so may or may not be a good idea. If you have a traditional IRA or 401k, your money is currently growing tax deferred and you'll pay tax on the money as it is drawn out at retirement. So why might you want to convert? Read on to learn the benefits, and who is a good candidate for this kind of switch.

Reasons to Convert Your Traditional IRA/401 to a Roth

A Roth is the opposite of a traditional IRA or 401k. Roth IRAs and 401ks grow and the money invested in them is distributed tax free when you decide to retire. So if you had a Roth, you'd pay taxes now and pay no taxes on distributions when you decide to retire.

The benefit of paying now is it's less money in the long run. If you can afford to pay taxes today, they'll be cheaper than their equivalent in 20 or even 5 years. $20 today can inflate dramatically in the time until you retire.

There are several differences between traditional and Roth accounts. To put it simply, a Roth is best for you if you plan on being in a higher tax bracket then the one you're in now when you retire. If you plan on being in a lower tax bracket, a traditional account is better for you.

Note: You may also want to check out our related articles:

Roth IRA Conversion Doesn't Have to Be Forever

Yes that's right! If you have second thoughts, you can convert at any time. The good news is you can convert your traditional IRA to a Roth IRA, or your traditional 401k to a Roth 401k. The price to make that conversion is including the amount you convert to Roth as taxable income for the year in which you make the conversion.
For example, if you convert $100,000 from your traditional IRA to a Roth IRA in 2017, you will list $100,00 as income on your 2017 tax return. You will then pay any federal and state taxes on that income depending on your 2017 tax bracket.

You probably don’t like the idea of paying additional taxes to convert. Honestly, who would? Nobody likes paying their friends at the IRS more taxes now. However, you can easily end up saving more money as your account grows and the entire growth comes out tax free.

Three Situations Where Converting Your IRA or 401k Funds to Roth Is Your Most Profitable Option:

Expecting Higher Than Average Returns From An Investment Opportunity.

If you're about to make an investment you expect will produce huge returns, then it'll be in your best interest to convert to a Roth.
Wouldn't you rather pay tax on the smaller investment amounts now? Those larger returns will go back into your Roth IRA or 401k, where they will grow to an unlimited amount and come out tax free.
I realize this is hard to predict. After all, if it was easy we'd all be rich. However, a situation like this is bound to happen when you're investing in real estate, startups, pre-IPOs, and other investments.

Low Income Year.

The biggest pain of a conversion is that you have to pay tax on the money you convert. The best time to convert is when you're in a lower tax bracket because you'll end up paying less in taxes.
For example, if you are married and have $50K of taxable income for the year and you decide to convert $100K to Roth, you will pay federal tax on that converted amount at a rate of 15% which would result in $15,000 in federal taxes.
And don't forget about state income tax (if you live in a state that actually has one) because they tax conversions the same way the fed does!

If you choose to convert when you're in a high tax bracket at around $250,000 of income, then you’d pay federal tax on a $50K conversion at a rate of 33%. This would result in federal taxes of $16,500. In other words, that's one third of your money down the drain. Ouch!

Unfortunately, many of us have careers where we can't just expect to be in a lower tax bracket. This option is probably more likely for those who are self employed as small business owners, consultants and freelancers.

You'd Rather Have The Money Sooner Instead Of Later

Roth accounts are kind of like the gift that never stops giving. With a Roth you can take out the funds you've contributed or converted (NOT the earnings) after five years without paying tax or the early withdrawal penalty. Even if you aren’t 59 1/2.

For Roth conversions, the amount you convert can be distributed from the Roth account five years after the tax year in which you converted. The five-year clock starts to tick on January 1st of the tax year in which you convert, regardless of when you convert within the year.

Let's say you converted your traditional IRA to a Roth IRA in May 2017. You'd be able to take a distribution of the amounts converted without paying tax or penalty on January 2nd, 2022.

Whereas if you try to access funds in your traditional IRA or 401k before you are 59 1/2, you will pay tax AND a 10% early withdrawal penalty even if the amounts you distribute are only the contributions you put in, not the investment gains.

Roth accounts offer you flexibility, plain and simple. So if you're looking to always have access to your retirement money, a Roth is what you need!

Final Thoughts on Who Should Convert to a Roth

Whether or not you should convert to a Roth largely depends on your future. Will you be richer or poorer when you retire? Also, many employers are willing to match your contributions to a traditional 401k to a certain degree, whereas for a Roth they aren't.

For most people, a Roth conversion simply isn't worth the money. But for some circumstances, it's a no-brainer. If you need help determining if a Roth conversion is in your best interest call Royal Legal Solutions now at (512) 757–3994 to schedule your retirement consultation.

How To Flip Houses & Avoid UBTI/UBIT

First of all, I'd like to commend all you house flippers out there. Flipping houses isn't easy--not unlike some less honorable professions. But you know what makes it a little easier? Avoiding unnecessary contributions to Uncle Sam. Let's talk about the best way to flip houses and limit or avoid UBTI/UBIT.

Use a Self-Directed IRA for Flipping Houses

With a Self-Directed IRA, you can flip homes or engage in real estate transactions funded with your retirement savings by simply writing a check. As owner of your Self-Directed IRA LLC, you will have the authority to make real estate investment decisions on your own without having to wait for the consent of an IRA custodian.
Another advantage of using a Self-Directed IRA to flip homes is when you want to purchase a home with your self-directed IRA, you can make the purchase, pay for the improvements, and sell or flip the property on your own without involving an IRA custodian.

Did I forget to tell you all the money you make from flipping houses using a Self Directed IRA will be tax free? This is true, believe it or not. However, there are a few things you need to watch out for.

Understand and Avoid UBTI & UBIT

When engaging in a real estate transaction, like flipping a house, you should always be mindful of the Unrelated Business Taxable Income rules (also known as UBTI or UBIT).
The purpose of the UBTI and UBIT rules is to make sure those who are traditionally tax exempt, (IRA's, charities and 401k's) are taxed as a for-profit business when they engage in active business activities or use leverage.
The UBTI or UBIT rules generally applies to the taxable income of “any unrelated trade or business…regularly carried on” by an organization subject to the tax. The regulations separately treat three aspects of the quoted words—“trade or business,” “regularly carried on,” and “unrelated.”
Overview of The Three UBTI/UBIT Aspects
Trade or Business
The rules start with the concept of “trade or business” listed by Internal Revenue Code Section 162, which allows deductions for expenses paid or incurred “in carrying on any trade or business.”
The tax code is vague on this issue, but by using Section 162 as a reference you can limit the term “trade or business” to profit oriented activities involving the tax exempt entity. Let's break down the language.

"Regularly Carried On"

The UBIT or UBIT rules only applies to income of an unrelated trade or business that is “regularly carried on” by an organization.
Whether a trade or business is "regularly carried on" is determined by comparing what the tax exempt entity does to non-tax exempt entities. Basically, tax exempt entities can't do things that are deemed "commercial".
Unless they want to start paying taxes.

"Unrelated"

In the case of an IRA or 401k plan, any business activity will be treated as “unrelated” to its exempt purpose. This can be confusing, I know.
For IRA's and 401k's, a transaction would not trigger the UBTI or UBIT rules if the transaction is deemed not to be considered a trade or business that is "regularly carried on".
Activities which wouldn't trigger UBIT OR UBTI include capital gains, interest, rental income, royalties, and dividends generated by the IRA/401k. The passive income exemptions to the UBTI or UBIT rules are listed in Internal Revenue Code Section 512.

But if you, as a tax exempt entity, engage in an active trade or business, such as a restaurant, store, or manufacturing business, the IRS will tax the income from the business since the activity is an active trade or business that is regularly carried on.

How Do The UBTI/UBIT Rules Apply to Flipping Homes?

So now you're probably wondering what kind of real estate transaction will trigger the UBTI or UBIT taxes. As I mentioned earlier, the IRS is unfortunately vague on issues like this. What a coincidence, right?
There's no telling how many houses you have to flip in order to trigger the UBTI or UBIT tax. But the IRS does have a number of factors it will use to determine whether you've engaged in a high enough volume of real estate transactions, such as home flipping, to trigger the UBTI or UBIT tax.
3 Factors The IRS Uses:

Frequency. The IRS will examine the frequency of the transactions. As in, how many flipping transactions did you do in a given year?
Intention. The IRS will also examine your intent . Were you intending to engage in an active trade or business?
Alternate Activity Patterns. They'll also look at the other activities you've been doing using your 401k or IRA to determine whether the activity is part of a business activity (what you don't want them to think) or an investment.

What Happens If You Trigger UBTI or UBIT?

If it's determined that an activity/transaction you engaged in is an active trade or business transaction, you will trigger the UBTI or UBIT tax, which is taxed at a rate of approximately 40% for 2017.
The 40% rate can be lower or higher, depending on the facts and circumstances of your situation. What you should know is that one or two flipping transactions per year wouldn't be considered an active trade or business and wouldn't trigger the UBTI or UBIT tax.

Final Thoughts on Flipping and UBTI/UBIT: One Size Doesn't Fit All

Now, knowing the real estate tycoon that you are, you're probably asking yourself, what happens if you do 4 or 5, or even 10 flipping transactions in a year? Would that be considered an active trade or business causing the UBTI/UBIT taxes to get triggered?

The answer to your question largely depends on the circumstances of your unique situation. It's all about how and why you flip the houses, not how many you flip. At least, that's how your friends at IRS see it anyway.

401(k) For The Self Employed: What Kick-Ass Entrepreneurs Should Know

A self-directed 401(k) for self-employed business owners isn't the same as an employer-funded retirement plan.

And if you're a kick-ass entrepreneur, a solo 401(k) is a kick-ass way to save for retirement. Why? Because this unique plan offers the ability to use retirement funds to make any type of investment on your own without requiring the consent of a custodian.

The following are some examples of the types of investments you can make with your solo 401(k) :

Loans (personal, private, hard & soft, etc.)
Foreclosure property.
Stocks, Bonds, Mutual Funds
Tax liens
Gold
Mortgages
Raw land
Deeds
Private loans
Private businesses
Limited Liability Companies & Partnerships
Residential or commercial real estate
Mortgage pools
Private placements
Most currencies

Indeed, you can make just about any type of investment except art and collectibles.

Who Benefits The Most From a Solo 401(k) Plan?

The solo 401(k) plan is designed specifically for small, owner-only businesses. It’s a tax-efficient and cost-effective plan that offers all the benefits of a self-directed IRA, and includes a couple of unbeatable benefits, such as high contribution limits (up to $60,000 or $54,000 depending on your age) and a $50,000 loan feature.

There are many benefits and features of the solo 401(k) plan that make it useful to self-employed individuals. These features and benefits are what make the solo 401(k) plan so popular:

Roth Type Contributions

Roth IRAs have historically been unavailable to people with high incomes. But if you have a solo 401(k), you can use the built-in Roth sub-account which can be contributed to regardless of how much money you make.

Flexible Investment Options

As I mentioned above, you can make almost any type of investment, including real estate and private stock, and then channel them back into your solo 401(k) tax-free.

Loan Features

I also mentioned earlier how the solo 401(k) allows participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose. The interest rate on this loan will be the prime interest rate, which is around 4% give or take.

But be careful, failing to pay back this loan will "displease" your friends at the IRS to say the least!

UDFI Exemption

Most IRAs generate Unrelated Debt-Financed Income (a type of Unrelated Business Taxable Income) when they buy real estate. Which means they'll end up paying more taxes. Thankfully, a solo 401(k) plan is exempt from UDFI.

Sky High Contribution Limits

Under the 2017 solo 401k contribution rules, if you're under the age of 50 you can make a max contribution of $18,000. This amount can be made in pre-tax or after-tax dollars.

On the profit-sharing side, a business can make a 25% (20% in the case of a sole proprietorship or single-member LLC) profit-sharing contribution up to a combined max of $54,000, if you include the employee deferral.

If you're over the age of 50 everything is the same, except your contribution limit, which is $60,000 instead of $54,000.

Consolidation

A solo 401(k) can accept rollovers of funds from any other retirement account, such as an IRA, a SEP, or a previous 401(k).

Employee Elective Deferrals & Employer Profit Sharing

For 2017, you can contribute up to $18,000 per year through employee elective deferrals. An additional $6,000 ($24,000) can be contributed for persons over age 50. These contributions can be up to 100% of your self-employment compensation.

As an employer, you can make an additional contribution of up to 25% of your self-employment compensation.

Total Limit

As I mentioned earlier, the contributions to a solo 401(k) are capped at a max of $54,000 per year or $60,000 for persons over age 50.

But if your spouse also participates in the Solo 401(k) with you and earns compensation from the business, the spouse is allowed to make separate and equal contributions.
This would increase your combined annual contribution limit to $108,000 (or $120,000 if both spouses are over the age of 50).

Cost-Effective Administration

The solo 401(k) is not only easier to administrate, but it's also cheaper! There is no annual filing requirement unless your solo 401(k) plan exceeds $250,000, in which case you will need to file Form 5500.

Do Self-Employed Solo 401(k) Owners Need a Custodian?

Nope! The most cost-effective benefit of the solo 401(k) is that it does not require you to hire a bank or trust company to serve as trustee. This allows you to serve in the trustee role.

This means that all assets of the 401(k) trust are under your sole authority. You won't have to pay fees, or wait for a custodian's consent, unlike most other people with retirement accounts! And then you'll also be able to invest in almost anything by simply writing a check.

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Are There Any Administration Costs or Maintenance Fees With a Solo 401(k)?

Yes and no. You won't have to pay a custodian, so that kills 90% of the fees right there.

As for maintenance cost, there is generally no annual filing requirement unless your solo 401(k) plan exceeds $250,000 in assets. If you have more than $250,000, you'll need to fill out Form 5500.

Besides the $250,000 filing rule, you're not required to do anything else. However, I would advise you to keep all records, receipts, and contracts related to your solo 401(k) and its investments on file. So, if you hire someone to do those things for you, that will probably be your biggest administrative cost.

Do you want to learn more about solo 401(k) to see if it's the right option for you? Check out our previous article to find out if you're eligible for the solo 401(k).