​What is it?IntroductionIf you're the beneficiary of a large inheritance, you may find yourself suddenly wealthy. Even if you expected the inheritance, you may be surprised by the size of the bequest or the diverse assets you've inherited. You'll need to evaluate your new financial position, learn to manage your sizable assets, and consider the tax consequences of your inheritance, among other issues.
Issues that arise in connection with an inheritanceIf you've recently received a bequest, consider the possibility that the will may be contested if your inheritance was large in comparison with that received by other beneficiaries. Or, you may decide to contest the will if you feel slighted. If you're the spouse of the decedent, you may elect to take against the will. Taking against the will means that you're exercising your right under probate law (governed by the statutes of your state) to take a share of your spouse's estate, rather than what your spouse left you in the will, because this is more beneficial to you. Another possibility is that you may disclaim the bequest if you're in a high income or estate tax bracket, or don't need or want the bequest.
Caution: Some states allow no-contest clauses to be included in wills. If a will has such a clause and someone contests the will and loses, he or she gets nothing.
Evaluating your new financial positionIntroductionIt's important to determine how wealthy you are once you receive your inheritance. Before you spend or give away any money or assets, decide to move, or leave your job, you should do a cash flow analysis and determine your net worth as a first step toward planning your financial strategy. Your strategy will partly depend on whether you have immediate access to, and total control over, the assets, or if they're being held in trust for you. In addition, you need to know what types of assets you've inherited (e.g., cash, property, or a portfolio of stocks).
Inheriting assets through a trust vs. inheriting assets outrightWhen you inherit money and assets through a trust, you'll receive distributions according to the terms of the trust. This means that you won't have total control over your inheritance as you would if you inherited the assets outright. With a trust, a trustee will be in charge of the trust. A trustee is the person who manages the trust for the benefit of the beneficiary or beneficiaries. The initial trustee was named by the individual who set up the trust. The trustee will likely be your parent or other family member, a close family friend or advisor, an attorney, or a bank representative. The trust document may spell out how the trust assets will be managed and how and when trust income and assets will be paid to you, and it will outline the duties of the trustee.
Know the terms of the trustIf you're the beneficiary of a trust, the following should be done to ensure that your interests are protected:

• Read the trust document carefully. You have the right to see the document, so if you can't get a copy, hire an attorney to get it. Go over the document yourself or with the help of a legal or financial professional, making sure you understand the language of the trust and how its income and principal will be distributed to you. You may be the beneficiary of an irrevocable trust (can't be changed), or you may be the beneficiary of a revocable trust (can be changed). In addition, determine whether certain practices are allowed or prohibited. For example, one common trust provision prohibits a beneficiary from borrowing against the trust. Another can prevent the beneficiary from paying creditors with assets of the trust. An additional provision usually prohibits creditors from attaching a beneficiary's share of the trust.
• Determine if the trust income is sufficient to meet your needs. Is the trust heavily invested in long-term growth stocks or nonrental real estate? Or, is the trust invested in things that provide income to you now, such as rental real estate or money market funds? From your agent (e.g., attorney, accountant) or trustee, get the income statements used to calculate how much income will be distributed to you.
• Get to know your trust officers (if any) and find out how much the trustee fees are. Then, compare the fee with the average in your state or county (you might ask your local bank for this information). You may be able to negotiate the fee if it is too high, especially if the estate is large.

Working with a trusteeIn some trusts, the trustee must distribute all of the income to the beneficiary every year. This type of trust may be simple to administer and relatively conflict free. You may want to work with the trustee or other professionals to ensure that the annual trust distribution is adequate to meet your needs.
In other trusts, the trustee may decide when to distribute trust income and how much to distribute. If this is the case, open communication with the trustee is important. You'll need to set up a sound budget or financial plan and carefully prepare your request for a trust distribution if it is out of the ordinary. It's in your best interests to find a way to work with the trustee. In most states, trustees are difficult to replace, and although they're not supposed to lose money on investments, they're not usually penalized if the trust performs poorly. If you decide to sue the trustee for mismanaging the trust, his or her legal fees may be paid for from the trust.
Caution: No matter how trust funds are distributed, pay close attention to how the trustee handles the trust investments. Have your lawyer, accountant, or financial advisor look over the trustee's investment strategy. If your advisor determines that the trustee's investment strategy doesn't meet your needs or, worse, is unsound, discuss this strategy with the trustee or possibly ask the trustee to change his or her strategy.
Inheriting a lump sum of cashWhen you inherit a large lump sum of cash, you'll be responsible for managing the money yourself (or hiring professionals to do so). Even if you're used to handling your own finances, becoming suddenly wealthy can turn even the most cautious individual into a spendthrift, at least in the short run. Carefully watch your spending. Although you may want to quit your job, move, gift assets to family members or to charity, or buy a car, a house, or luxury items, this may not be in your best interest. You must consider your future needs, as well, if you want your wealth to last. It's a good idea to wait a few months or a year after inheriting money to formulate a financial plan. You'll want to consider your current lifestyle, consider your future goals, formulate a financial strategy to meet those goals, and determine how taxes may reduce your estate.
Inheriting stockYou may inherit stock either through a trust or outright. The major question to consider is whether you should sell the stock. This depends on your overall investment strategy and what type of stock you've acquired. If you acquire stock in a company, for example, and you now own a controlling interest, you'll need to look at how actively you want to be involved in the company or how much you know about the company. If you inherit stock and find that it doesn't fit your portfolio, you may consider selling it, depending on the market conditions.
Inheriting real estateIf you inherit real estate, such as a house or land, you'll probably have to decide whether to keep it or sell it. If you keep it, will you live there or rent it out? Do you hope that the house will appreciate in value, or are you keeping it for sentimental reasons? If you decide to sell or rent the house, you'll need to consider the tax consequences, as well.
Tip: It's possible that you may inherit real estate or other assets together with others, and sales may require the other owners' assent or court action to sever the property.
Short-term and long-term needs and goalsOnce you've done a cash flow analysis and determined what type of assets you've inherited, you need to evaluate your short-term and long-term needs and goals. For example, in the short term, you may want to pay off consumer debt such as high-interest loans or credit cards. Your long-term planning needs and goals may be more complex. You may want to fund your child's college education, put more money into a retirement account, invest, plan to minimize taxes, or travel.
Use the following questions to begin evaluating your financial needs and goals, then seek advice on implementing your own financial strategy:

• Do you have outstanding consumer debt that you would like to pay off?
• Do you have children you need to put through college?
• Do you need to bolster your retirement savings?
• Do you want to buy a home?
• Are there charities that are important to you and whom you wish to benefit?
• Would you like to give money to your friends and family?
• Do you need more income currently?
• Do you need to find ways to minimize income and estate taxes?

Tax consequences of an inheritanceIncome tax considerationsIn general, you won't directly owe income tax on assets you inherit. However, a large inheritance may mean that your income tax liability will eventually increase. Any income that is generated by those assets may be subject to income tax, and if the inherited assets produce a substantial amount of income, your tax bracket may increase. Once you increase your wealth, you should look at ways to minimize your overall tax liability, such as shifting income, giving money to individuals or charity, utilizing other income tax reduction strategies, and investing for growth rather than income. You may also need to re-evaluate your income tax withholding or begin paying estimated tax.
Transfer tax considerationsIf you're wealthy, you'll need to consider not only your current income tax obligations but also the amount of potential transfer taxes that may be owed. You may need to consider ways to minimize these potential taxes. Four common ways to do so are to (1) set up a marital trust, (2) set up an irrevocable life insurance trust, (3) set up a charitable trust, or (4) make gifts to individuals and/or to charities.
Impact on investingInheriting an estate can completely change your investment strategy. You will need to figure out what to do with your new assets. In doing so, you'll need to ask yourself several questions:

• Is your cash flow OK? Do you have enough money to pay your bills and your taxes? If not, consider investments that can increase your cash flow.
• Have you considered how the assets you've inherited may increase or decrease your taxes?
• Do you have enough liquidity? If you need money in a hurry, do you have assets you could quickly sell? If not, you may want to consider having at least some short-term, rather than long-term, investments.
• Are your investments growing enough to keep up with or beat inflation? Will you have enough money to meet your retirement needs and other long-term goals?
• What is your tolerance for risk? All investments carry some risk, including the potential loss of principal, but some carry more than others. How well can you handle market ups and downs? Are you willing to accept a higher degree of risk in exchange for the opportunity to earn a higher rate of return?
• How diversified are your investments? Because asset classes often perform differently from one another in a given market situation, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives, has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be at least partially offset by a gain in another, though diversification can't guarantee a profit or eliminate the possibility of market loss.

Once you've considered these questions, you can formulate a new investment strategy. However, if you've just inherited money, remember that there's no rush. If you want to let your head clear, put your funds in an accessible interest-bearing account such as a savings account, money market account, or a short-term certificate of deposit until you can make a wise decision with the help of advisors.
Impact on insuranceWhen you inherit wealth, you'll need to re-evaluate your insurance coverage. Now, you may be able to self-insure against risk and potentially reduce your property/casualty, disability, and medical insurance coverage. (However, you might actually consider increasing your coverages to protect all that you've inherited.) You may want to keep your insurance policies in force, however, to protect yourself by sharing risk with the insurance company. In addition, your additional wealth results in your having more at risk in the event of a lawsuit, and you may want to purchase an umbrella liability policy that will protect you against actual loss, large judgments, and the cost of legal representation. If you purchase expensive items such as jewelry or artwork, you may need more property/casualty insurance to protect yourself in the event these items are stolen. You may also need to recalculate the amount of life insurance you need. You may need more life insurance to cover your estate tax liability, so your beneficiaries receive more of your estate after taxes.
Impact on estate planningRe-evaluating your estate planWhen you increase your wealth, it's probably time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your exposure to potential taxes and creating financial security for your family and other intended beneficiaries.
Passing along your assetsIf you have a will, it is the document that determines how your assets will be distributed after your death. You'll want to make sure that your current will reflects your wishes. If your inheritance makes it necessary to significantly change your will, you should meet with your attorney. You may want to make a new will and destroy the old one instead of adding codicils. Some things you should consider are whom your estate will be distributed to, whether the beneficiary(ies) of your estate are capable of managing the inheritance on their own, and how you can best shield your estate from estate taxes. If you have minor children, you may want to protect them from asset mismanagement by nominating an appropriate guardian or setting up a trust for them.
Using trusts to ensure proper management of your estate and minimize taxesIf you feel that your beneficiaries will be unable to manage their inheritance, you may want to set up trusts for them. You can also use trusts for tax planning purposes. For example, setting up an irrevocable life insurance trust may minimize federal and state transfer taxes on the proceeds.
Impact on education planningYou may want to use part of your inheritance to pay off your student loans or to pay for the education of someone else (e.g., a child or grandchild). Before you do so, consider the following points:

• Pay off outstanding consumer debt first if the interest rate on your consumer debt is higher than it is on your student loans (interest rates on student loans are often relatively low)
• Paying part of the cost of someone else's education may impact his or her ability to get financial aid
• You can make gifts to pay for tuition expenses without having to pay federal transfer taxes if you pay the school directly

Giving all or part of your inheritance awayGiving money or property to individualsOnce you claim your inheritance, you may want to give gifts of cash or property to your children, friends, or other family members. Or, they may come to you asking for a loan or a cash gift. It's a good idea to wait until you've come up with a financial plan before giving or lending money to anyone, even family members. If you decide to loan money, make sure that the loan agreement is in writing to protect your legal rights to seek repayment and to avoid hurt feelings down the road, even if this is uncomfortable. If you end up forgiving the debt, you may owe gift taxes on the transaction. Gift taxes may also affect you if you give someone a gift of money or property or a loan with a below-market interest rate. The general rule for federal gift tax purposes is that you can give a certain amount ($15,000 in 2019) each calendar year to an unlimited number of individuals without incurring any tax liability. If you're married, you and your spouse can make a split gift, doubling the annual gift tax exclusion amount (to $30,000) per recipient per year without incurring tax liability, as long as all requirements are met. Giving gifts to individuals can also be a useful estate planning strategy.
Tip: The annual gift tax exclusion is indexed for inflation, so the amount may change in future years.
Caution: This is just a brief discussion of making gifts and gift taxes. There are many other things you will need to know, so be sure to consult an experienced estate planning attorney.
Giving money or property to charityIf you make a gift to charity during your lifetime, you may be able to deduct the amount of the charitable gift on your income tax return. Income and other limits apply. Consult a tax professional for help. For estate planning purposes, you may want to make a charitable gift that can minimize the amount of transfer taxes your estate may owe. There are many arrangements you can make to reach that goal. Be sure to consult an experienced estate planning attorney.
 
This article was prepared by Broadridge.
LPL Tracking #1-292961

When you start to consider if investing is an appropriate option for you, you may have questions. You might want to ask:

• How do I invest money, and where?
• How much money will I need?
• What are some common strategies for someone that has never invested before?

 
It’s OK to have questions. Investing can be a challenging subject to grasp. The more you learn about investing and the potential benefits, the more your confidence may grow.
 
It’s exciting when you decide to invest and watch your money work for you, but it’s more than just buying and selling. Investing requires careful analysis, research, and strategy. Whether you’re a beginner or even an intermediate investor, you are encouraged to seek assistance from a financial professional.
 
Receiving guidance from someone with experience can show you how the market works, how to research companies, and it can help you learn how to avoid common investment mistakes.
 
Get Involved in Investing as Early as Possible
 
To consider the potential returns on your investments, it helps to invest early so that you may improve your financial stability. One way this can occur is through compounding. Over time, investments can start to earn money on their own return. [i]
 
Why Do People Invest?
 
Some people invest to grow their wealth, while some have retirement goals like securing funds in a Roth, traditional IRA, or 401(k). Others invest for reasons unique to them and their financial situation.
 
How to Begin Your Investing Journey?
 

• Decide how much money you are comfortable investing. Only invest what you are willing to lose.

 

• Educate yourself on investing. Read books on investing and talk to people who are familiar with the investing world to learn more about investment opportunities and strategies.

 
 

• Determine which brokerage firm would work for you and your investment goals. To locate a broker that could help build a strategy to match these goals, it may be helpful to seek guidance from someone with experience like a banker that you trust, a financial professional, a family member or a friend. Once you establish a few different possibilities, consider using these tips to narrow down your selection:

 
 

• Research brokers with a history of reliability.
• Be aware of account minimums.
• Take note of any commissions or fees that the firm may charge. For example, some brokers may charge a fee to buy and sell stocks and mutual funds. Exchange-Traded Funds (ETFs) are typically subject to stock trade commissions, however, commission-free ETFs are often available. [ii]
• Contact the brokerage firm and fill out an application.

 
 

• Find a brokerage account that is suitable for your needs. Typically, there are three main accounts that are popular. A financial professional can assist you in figuring out which one may appropriately align with your goals. These accounts include:

 

• A standard brokerage account. This type of account is the most common and allows you to buy securities with only the money that you have at that moment.
• A retirement account is one that has a particular tax status where money can grow tax-free.
• A margin account is a variation of a standard account. It works like a credit card where you can borrow money to buy securities and then pay the lender back later. [iii]

What Are Some Investment Options?
 

• Stocks are a share of ownership in a single company.

 

• Bonds are a loan to a government entity or a company. It can be thought of as an I.O.U. between the lender and borrower. They pay you back over a period of time and you might earn interest growth on the money. [iv]

 
 

• A mutual fund is a collection of investments that are typically less risky than individual stocks due to the fact that they are often diversified. Mutual funds are managed by a professional. [v]

 

• An index fund is a type of mutual fund or exchange traded fund that seeks to track the returns based on the market. [vi]

 
 

• There are other investment instruments that a financial advisor can help you learn more about including private funds, insurance products, Real Estate Investment Trusts (REITS) and more.

 
Common Investing Mistakes
 

• Being knowledgeable can help you avoid critical decisions that knock you off course as you pursue your investment goals. Here are four mistakes to avoid:

 

• Making too many trades too often.
• Not being diversified.
• Not having an instrument strategy.
• Buying high and selling low.

 
Building your confidence as an investor may take some time, but the lessons you learn on your investing journey can help you to prepare a strategy that is appropriate for you, your family, and your goals.
 
 
Sources:
 


[i] How to Start Investing: A Guide for Beginners - NerdWallet

[ii] How to Choose the Best Online Broker - NerdWallet

[iii] Margin Account Vs. Cash Account: The Biggest Differences - NerdWallet

[iv] Bond: Financial Meaning With Examples and How They Are Priced (investopedia.com)

[v] Mutual Funds: Different Types and How They Are Priced (investopedia.com)

[vi] Index Funds | Investor.gov
 
 
 
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. All indexes are unmanaged and cannot be invested into directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Investing in mutual funds involves risk, including possible loss of principal.  The funds value will fluctuate with market conditions and may not achieve its investment objective. Upon redemption, the value of fund shares may be worth more or less than their original cost.
An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.
Investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions.
LPL Tracking #1-05354291
 

What is it?A trust is a legal entity that you can set up and use to hold property for the benefit of one or more individuals (the trust beneficiaries). Every trust has one or more trustees charged with the responsibility of (1) managing the trust property, and (2) distributing trust income and/or principal to the trust beneficiaries according to the terms of the trust agreement. (A trustee can be an individual or an institution, such as a bank.) Many different types of trusts can be used to achieve a variety of objectives.
You may be able to designate a trust as beneficiary of your IRA or employer-sponsored retirement plan, if the IRA custodian or plan administrator allows such a designation. If the trust meets certain requirements, the beneficiaries of the trust can be treated as the designated beneficiaries of the IRA or retirement plan for purposes of calculating the distributions that must be taken following your death (required post-death distributions).
Caution: This discussion applies to qualified employer-sponsored retirement plans and traditional IRAs, not to Roth IRAs. Special considerations apply to beneficiary designations for Roth IRAs.
Caution: Employer-sponsored qualified plans may require that you designate your spouse as beneficiary, unless your spouse signs a waiver allowing you to name a different beneficiary.
Naming a trust as beneficiary usually will not affect required minimum distributions during your lifeUnder federal law, you must begin taking annual required minimum distributions (RMDs) from your traditional IRA and most employer-sponsored retirement plans [including 401(k)s, 403(b)s, 457(b)s, SEPs, and SIMPLE plans] by your "required beginning date" — April 1 of the calendar year following the calendar year in which you reach age 72.
With employer-sponsored retirement plans, you can delay your first distribution from your current employer's plan until April 1 of the calendar year following the calendar year in which you retire if (1) you retire after age 72, (2) you are still participating in the employer's plan, and (3) you own 5 percent or less of the employer.
Your choice of beneficiary generally will not affect the calculation of your RMDs during your lifetime. An important exception exists, though, if your spouse is your sole designated beneficiary for the entire distribution year, and he or she is more than 10 years younger than you. The same exception may also apply if you name a trust as your sole beneficiary, and the sole beneficiary of the trust is your spouse who is more than 10 years younger than you.
If you name a trust as your beneficiary, the beneficiaries of the trust may be treated as the IRA or plan beneficiaries for purposes of required post-death distributions. See below for additional information.
Caution: If a trust is a designated beneficiary, all beneficiaries of the trust are considered in determining the oldest beneficiary. The only exception is an individual whose benefit is contingent on another beneficiary dying prior to the payout of the entire IRA or plan balance. For beneficiaries inheriting from a decedent dying after 2019, the life expectancy method can only be used for eligible designated beneficiaries (see below). It is unclear if a trust (other than certain trusts for disabled or chronically ill beneficiaries) can use the life expectancy method if the trust has beneficiaries other than one eligible designated beneficiary.
Caution: The calculation of RMDs is complex, as are the related tax and estate planning issues. For more information, consult a tax professional or estate planning attorney.
What rules must be followed for a trust beneficiary to qualify as a designated beneficiary?Caution: The SECURE Act ushered in a new set of rules establishing what's known as an eligible designated beneficiary (EBD). Although the Act did not change the definition of a designated beneficiary (DB), the IRS has not yet clarified how the new rules will specifically apply to beneficiaries of trusts. The distinction between an EBD and a DB matters significantly in determining the rules surrounding distributions. See note below under "A trust beneficiary can be treated as the IRA or retirement plan beneficiary." An EDB is a beneficiary who meets at least one of the following criteria: the account owner's surviving spouse; the account owner's child who is under the age of majority (18, in most cases — once the child reaches the age of majority, he/she is no longered considered an eligible designated beneficiary); a disabled or chronically ill individual, as defined by the IRS; someone not more than ten years younger than the account owner. For more information, consult a tax professional or an estate planning attorney.
Certain special requirements must be met in order for an underlying beneficiary of a trust to qualify as a designated beneficiary of an IRA or retirement plan. The beneficiaries of a trust can be designated beneficiaries under the new IRS distribution rules only if the following four trust requirements are met in a timely manner:

• The trust beneficiaries must be individuals clearly identifiable (from the trust document) as designated beneficiaries as of September 30 following the year of your death.

Caution: Final IRS regulations state that trust beneficiaries may not use the "separate account" rules that might otherwise allow each beneficiary to use his or her life expectancy when calculating required post-death distributions. You may need to establish separate trusts for each beneficiary to accomplish this goal. Consult an estate planning attorney.

• The trust must be valid under state law. A trust that would be valid under state law, except for the fact that the trust lacks a trust "corpus" or principal, will qualify.
• The trust must be irrevocable, or (by its terms) become irrevocable upon the death of the IRA owner or plan participant.
• The trust document, all amendments, and the list of trust beneficiaries (including contingent and remainder beneficiaries) must be provided to the IRA custodian or plan administrator by the October 31 following the year of your death.

Caution: There is an exception to the above deadline in cases where the sole beneficiary of the trust is your spouse who is more than 10 years younger than you, and you want to base lifetime RMDs on joint and survivor life expectancy. In this case, trust documentation should be provided before lifetime RMDs begin.
In addition to these requirements, a surviving spouse will not be considered the sole beneficiary of a trust if any of the IRA or plan funds in the trust can be accumulated during the surviving spouse's lifetime for the benefit of remainder beneficiaries.
Caution: You should consult an estate planning attorney regarding the above requirements, as a mistake may prove costly.
Advantages of naming a trust as beneficiaryA trust beneficiary can be treated as the IRA or retirement plan beneficiaryAs mentioned, if you name a trust as beneficiary of your IRA or plan and meet certain requirements, the individuals named as beneficiaries of the trust can be treated as the designated beneficiaries of the IRA or plan. This is significant because it typically allows you to provide the individual trust beneficiaries with the same post-death options they would have if you named them directly as the IRA or plan beneficiaries. These individuals will generally have the opportunity to calculate post-death distributions using the life expectancy method (provided that the IRA custodian or plan administrator permits this method, and that the beneficiaries are eligible designated beneficiaries), potentially stretching distributions over many years. A longer post-death payout period will spread out the beneficiaries' income tax liability on the funds and prolong tax-deferred growth in the IRA or plan.
One situation in which naming a trust as the IRA or plan beneficiary will limit post-death distribution options is when you want to provide for your surviving spouse. In this case, naming your spouse directly as IRA or plan beneficiary is generally a better strategy for income tax planning purposes (but maybe not death tax planning purposes) than naming a trust that has your spouse as beneficiary.
Caution: If the life expectancy method is used, post-death distributions must begin no later than the December 31 following the year of your death, and must be based on the single life expectancy of the oldest beneficiary of the trust (i.e., the one with the shortest life expectancy).
Caution: If the trust you have designated as IRA or plan beneficiary is not properly designed, you may be treated as if you died without a designated beneficiary. That would likely limit the payout period for post-death distributions, in many cases considerably.
Note: For decedents dying after 2019, the life expectancy method can only be used if the designated beneficiary is an eligible designated beneficiary. An eligible designated beneficiary is a designated beneficiary who is the spouse or a minor child of the IRA owner or plan participant, a disabled or chronically ill individual, or other individual who is not more than ten years younger than the IRA owner or plan participant (such as a close-in-age sibling). Special rules apply in the case of certain trusts for disabled or chronically ill beneficiaries. In any other case, it is unclear if a trust can use the life expectancy method if the trust has beneficiaries other than one eligible designated beneficiary.
 
Naming a trust can allow you to retain control after your deathWhen you designate one or more individuals directly as beneficiaries of your IRA or retirement plan, after your death, those individuals are generally free to do with the inherited funds as they please. This could mean, among other things, withdrawing all of the funds in one lump sum and incurring a large income tax bill. However, you can retain some control over the funds after your death by setting up a trust for the benefit of your intended beneficiaries, and then naming that trust directly as beneficiary of your IRA or plan. Your intended beneficiaries will still receive the IRA or plan funds after you die, but generally according to your wishes as spelled out in the trust document, provided IRS rules are followed. This often gives you the ability to control the timing and amounts of distributions, preventing your children or other trust beneficiaries from squandering the funds.
Caution: In some cases, the tradeoff for receiving tax benefits may involve following IRS rules on distributions instead of completely designing your own distribution provisions for your trust. Also, income that is retained in a trust and not paid out to beneficiaries may be heavily taxed for income tax purposes.
Assets held in a trust may be protected from creditorsIRA or retirement plan funds left to a properly drafted trust for the benefit of your intended beneficiaries may enjoy considerable protection against their creditors, at least as long as those funds remain in the trust. In fact, leaving retirement assets to your beneficiaries via a trust will often provide greater creditor protection than if you left those assets directly to your beneficiaries. This can be a major advantage if one or more of your beneficiaries has substantial unsecured debts. Consult an estate planning attorney for further details, and to find out what type of trust will provide the most creditor protection.
A QTIP trust for your spouse may be beneficialA qualified terminable interest property (QTIP) trust is a type of marital trust that allows you to provide for your surviving spouse during his or her lifetime, defer estate tax at your death, and control who the ultimate beneficiaries will be. If you name this type of trust as the beneficiary of some or all of your retirement assets, your spouse will receive distributions during his or her lifetime and, to the extent the entire account is not consumed, the balance may be left to your children and/or other beneficiaries. Retirement plan assets left to this type of trust are not subject to estate tax at your death, but the remaining assets will be included in your spouse's taxable estate at his or her death. Consult an estate planning attorney for further details.
Caution: To use a QTIP, your spouse must be a U.S. citizen. If your spouse is not a U.S. citizen, a special type of trust known as a qualified domestic trust (QDOT) may be appropriate. With a QDOT, as with a QTIP, all trust income is paid to your surviving spouse during his or her lifetime. However, unlike a QTIP where remaining trust assets are included in the surviving spouse's estate at his or her death for estate tax purposes, the assets will be taxed in the first spouse's estate at the surviving spouse's death or upon the earlier withdrawal of principal. Consult an estate planning attorney for further details.
A credit shelter trust may be beneficialIn some cases, you may want to name a certain kind of estate-tax-saving trust as the beneficiary of some or all of your IRA or retirement plan assets. This type of trust goes under many names, including "credit shelter trust," "B trust," "bypass trust," and "exemption trust." The size of the trust is usually tied to the size of the federal applicable exclusion amount.
The purpose of this type of trust generally is to allow your spouse (or other trust beneficiaries) to benefit from the assets placed in the trust, but to exclude those assets from estate tax, not only at your death, but also at your surviving spouse's death. Consult an estate planning attorney for further details.
Caution: If too much or all of your estate goes into this type of trust under the increasing applicable exclusion amount, then your surviving spouse may not be adequately provided for, unless you have specific provisions added to the trust document.
Caution: Since this type of trust may be forever exempt from estate tax, you may not want to diminish its value by funding it with retirement assets that are subject to income tax. If possible, other assets might be more appropriate sources of funding for the trust.
Caution: This may not be the proper strategy for some married couples. A tax law passed in 2001 replaced the state death credit with a deduction starting in 2005. As a result, many of the states that imposed a death tax equal to the credit decoupled their tax systems, imposing a stand-alone death tax. Many of these states allow an exemption that is less than the federal exemption. This may leave some couples vulnerable to higher state death taxation. See your financial professional for more information.
Tip: In 2011 and later years, the unused basic exclusion amount of a deceased spouse is portable and can be used by the surviving spouse. Portability of the exclusion may provide some protection against wasting of the exclusion of the first spouse to die and reduce the need for a credit shelter or bypass trust.
Disadvantages of naming a trust as beneficiaryNaming a trust for the benefit of your spouse may limit post-death optionsIf you want to provide for your spouse after your death, you can set up a trust for the benefit of your spouse, and then name that trust directly as beneficiary of your IRA or retirement plan. Your spouse, as beneficiary of the trust, could then be considered an eligible designated beneficiary of the IRA or plan (as long as all of the above requirements are met). However, think carefully and seek professional advice before making this beneficiary choice. The use of a trust may limit or rule out certain post-death options that would otherwise be available to your spouse if he or she were named directly as beneficiary of the IRA or plan.
For example, under the minimum required distribution rules, your spouse would lose the right to treat an inherited IRA as his or her own account (even if your spouse were the sole beneficiary of the trust). If you want your spouse to ultimately receive your IRA or plan assets, the best way to achieve this goal is typically to directly name your spouse as beneficiary of those assets (unless there are specific reasons for using a trust instead). Naming your spouse as primary beneficiary provides greater options and maximum flexibility in terms of post-death distribution planning.
Caution: Nonspouse beneficiaries cannot roll over inherited funds to their own IRA or plan. However, a nonspouse beneficiary can make a direct rollover of certain death benefits from an employer-sponsored retirement plan to an inherited IRA (traditional or Roth).
Trusts can be complicated and costly to set upSetting up a trust can be expensive, and maintaining it from year to year can be burdensome and complicated. So, the cost of establishing the trust and the effort involved in properly administering the trust should be weighed against the perceived advantages of using a trust as an IRA or retirement plan beneficiary. In addition, remember that if the trust is not properly drafted, you may be treated as if you died without a designated beneficiary for your IRA or plan. That would likely shorten the payout period for required post-death distributions. Provisions of your trust need to take into account laws regarding the payout of trust income in connection with estate tax planning issues. Also, funding a trust that is exempt from death tax (e.g., credit shelter trust) with assets that have a built-in income tax liability reduces the net amount really in this trust.
Also, depending on the purpose of the trust and other factors, a trust may not be worthwhile. Depending on the size of your estate and the amount of the estate tax exemption in the year of your death, using a trust for estate tax purposes may or may not make sense. Consult an estate planning attorney for further guidance.
 
This article was prepared by Broadridge.
LPL Tracking #1-05177156

What is a spending plan?Your spending plan is your active strategy for getting where you want to go. Think of your spending plan as a road map that helps you reach your goals, as well as give you a sense of direction. Your spending plan not only puts you in charge of how your money is being spent on a weekly, monthly, and yearly basis, but it also gives you a sense of control.
What are the steps to develop a spending plan?It takes some time and effort to develop a spending plan that is right for you and your family. Of course, there are guidelines provided by experts that you can follow, but in the end, you need to develop a plan that you can follow. Here are the steps you can take to develop your own spending plan:

• Create a spending diary
• Identify out-of-pattern expenses
• Estimate your income

Create a spending diaryIn order to develop a spending plan that is appropriate for your lifestyle, you need to understand your own spending habits. First, start recording all your expenses for at least a month. It is important to remember to include all expenses, no matter how trivial they may seem.
Create categoriesIt is important to understand the types of things you spend your money on, as well as the individual items. For this reason, you will want to make a list of categories under which you expect your expenses to fall into. You might want to include the following categories in your list:

• Housing (e.g., mortgage, property taxes, insurance)
• Food
• Transportation (e.g., car payments, gas)
• Other (e.g., entertainment)

Use a money management programOne way to track your income and expenses is by using an online money management program. An added advantage of a money management program is that it can link all your accounts with each other so you can access and pull information from your various accounts. It can also help during tax season by keeping track of all of your tax-deductible expenses.
Identify out-of-pattern expensesOnce you have created categories and listed all your expenses for a month, your next step is to identify your out-of-pattern expenses. Your spending diary will only give you expenses that you made during that period. However, there are many expenses such as insurance payments, holiday gifts, or property taxes that occur annually, semiannually, or quarterly. Look at your canceled checks, your checkbook register, and any other receipts for the last year that can identify all of your out-of-pattern expenses. Add all your out-of-pattern expenses on a yearly basis and divide them into 12 so that you have a clear idea of how much you need on a monthly basis for your spending plan.
Estimate your incomeIf you are getting a regular salary, estimating your income is easy. Write down your monthly income minus federal and state taxes, Social Security taxes, and any other automatic deductions. Add other income such as dividends, interest, and child support. Make

 
sure you include all types of income.

 
Tip: If you get paid weekly, biweekly, or semimonthly, you will need to convert your periodic salary to a monthly figure. For weekly paychecks, multiply your weekly income by 4.3 to get an accurate indication of your monthly income. For biweekly paychecks, multiply your biweekly income by 2.16. And for semimonthly paychecks (i.e., those who get paid on the first and fifteenth of each month), multiply your semimonthly income by 2.
If your income is irregular, you will have to start with the premise that your total income is somewhat predictable, but your paychecks come at uneven intervals. Look at your income over the last two years and project your income for the next 12 months. Divide that number by 12 and consider that to be your monthly income. Plan your spending with that income in mind. During months that you earn more than average, save the extra earnings for the months when you earn less.
Tips to keep in mind when creating your spending planKeep your spending habits in mindPeople's spending habits do not change overnight so don't create a spending plan that is totally inconsistent with your current spending habits. Otherwise, you are likely to break that budget before it has a chance to succeed. Any budget that changes your lifestyle completely will be very hard to follow. If you are used to eating out at least twice a week and you create a spending plan that allows you to eat out only once a month, you are more likely to stray from the plan than if you create a plan that allows you to eat out once a week.
Keep it flexibleAny budget that is too rigid is likely to fail. In real life, unexpected things happen. Cars break down and friends drop in to visit, so keep some flexibility in your budget to take care of small occurrences.
Keep it easyCreate a system that is easy to follow. After your initial monitoring period, you don't have to record every penny you spend. The less record keeping you have to do, the easier it is to monitor your spending plan.
Keep some funKeep a small amount of money available for activities that you enjoy. If you create a spending plan that takes away all your fun, you will have a hard time following the plan.
Include all your categories separatelyWhen you create your spending plan, assign exact amounts to each category and make sure that you have included all the categories. Often, people make a mistake of lumping too many expenses in one category or not creating a category for occasional expenses. That makes it difficult to track your spending and pinpoint exactly where your money went. For example, instead of creating a category for medical bills, separate them into doctor, dentist, etc.

 
Start with a six-month planOften, it is helpful to reevaluate your plan after a few months to see how you are doing, instead of creating a plan for a full year and trying to stick with it.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
This article was prepared by Broadridge.
LPL Tracking #1-583674
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