Traditional IRA:  A traditional IRA, or Individual Retirement Account, is a tax-deferred retirement savings plan that you establish on your own, separate from any retirement plan that may be offered by your employer.  For the year 2010, you’re allowed to contribute up to $5,000 to a traditional IRA; $6,000 if you’re age 50 or older (as long as you’ve earned at least this much income).  Subject to certain income restrictions, these contributions to your IRA are tax deductible in the year you make them.  Your money is allowed to grow, tax-free, until you withdraw it, at which point you pay taxes on the money.  There are penalties for withdrawing money from an IRA before you reach age 59 1/2, unless you meet certain hardship requirements.

Roth IRA:  Like a traditional IRA, a Roth IRA is a private retirement savings plan that is separate from any retirement plan offered by your employer.  However, unlike a traditional IRA, a Roth IRA is a tax-free Individual Retirement Account.  This means that you fund the account with after-tax dollars, but the money in the account grows tax-free and withdrawals from the account are not subject to income tax, provided the account has been open for at least five years and, with some exceptions, as long as you’re age 59 ½  or older when the withdrawals are made.  There are restrictions on how much you can contribute each year, and there are penalties for certain types of early withdrawals.

Spousal IRA:  A spousal IRA allows a non-wage-earning spouse to have an Individual Retirement Account based on his or her wage-earning spouse’s income.  Because both Roth and traditional IRA’s require you to earn at least as much each year as you contribute to the account, a spousal IRA allows a stay-at-home spouse to contribute the full allowable amount to an IRA in any given year, as long as his or her wage earning spouse makes enough to cover the contribution.  Once the stay-at-home spouse’s contribution is made to the IRA, that amount belongs to the stay-at-home spouse, no matter the source of the money.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

If you’re just getting started on your estate plan, you may be wondering what probate is and why there seems to be such a big fuss about avoiding it.

Probate is the court process of having a deceased person’s Will declared valid and having their property distributed according to the instructions in the Will and according to state law.  Depending on the size of a person’s estate and whether or not any disputes arise during the process, probate can take anywhere from several months to several years.

While the estate of a deceased person is in probate, his or her property is generally not accessible to the heirs of his or her estate.  It’s only after all the debts and taxes owed by the estate are paid off, and the court permits it, that the remaining estate property can be distributed to family members or other beneficiaries.

Because of the time and legal fees involved in the probate process, many people choose to plan their estates so that they can avoid the process.  There are a number of methods for doing this, including establishing a Revocable Living Trust, owning property as Joint Tenants With Rights of Survivorship, and taking advantage of payable on death accounts.

There are some advantages to the probate process that can benefit people in certain situations.  In order to be truly beneficial, your estate plan should be tailored to your specific circumstances.  For guidance as to which estate planning methods are best for you, consult with an estate planning attorney.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

The Grantor Retained Annuity Trust (“GRAT”) is an advanced estate planning tool that benefits people with a high net worth who want to reduce their estate tax and gift tax burden while making a large transfer of appreciating assets to their children, grandchildren, or other beneficiaries.  Here’s how it works:

You, as the grantor, set up an irrevocable trust and fund it with a single transfer of assets.  The assets have to be income-producing, and they should be expected to appreciate at a rate higher than the IRS assumed rate of return. When you establish the trust, you also set a termination date for the trust.  While the trust is in existence, the trustee pays you an annuity from the trust.  Your annuity is either a fixed dollar amount or a percentage of the trust income.  At the termination date of the trust, the trustee distributes the trust assets to the beneficiaries you named when you established the trust.

Here’s why there’s a tax savings:

You save on estate tax because, by making the transfer of assets, you’ve reduced the overall size of your estate, and therefore the amount of your estate tax.  The estate tax on the trust assets is calculated as of the date the assets are transferred to your beneficiaries, so the strategy only works if you’re alive when the transfer happens.  If you die before the trust terminates, then the strategy fails and your estate is taxed on the value of the assets.

You save on gift tax because, although you do pay gift tax on the transfer, you only pay it once, and it’s when the assets are funded into the trust.  So, assuming the assets appreciate at a higher rate of return than that predicted by the IRS, your beneficiaries may receive a great deal of money tax-free.

GRATs are not for everyone, and there is a certain amount of gambling involved in establishing one.  A qualified estate planning attorney can help you determine whether a GRAT is right for you.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

‘Being of sound mind and body’ is a phrase we’re all familiar with. It’s the phrase most commonly used to begin a Will.

But that’s not the only important part of the Will. In fact, this phrase is part of what’s referred to as the Exordium Clause, the introductory portion of the Will that identifies the person leaving the Will (often referred to as the testator) and provides additional identifying information as well as a declaration that the document is indeed, a Will.

Since a Will is normally updated over a person’s lifetime and likely includes a variety of changes, there is a portion within the Exordium Clause that revokes any previous versions of the Will as well as any amendments, otherwise known as codicils.  Thus, the Will is more formally called ‘The Last Will and Testament.”

The main body of the Will names the executor of your estate, who will be responsible for distributing assets according to your wishes, paying debts and handling estate-related expenses.  Parents also use this area of the Will to name a guardian for any children under the age of 18.  The body of the Will also details your wishes on the disposition of property and associated issues.

Following the body of the Will is a closing declaration called the Testimonium Clause, which is simply a declaration that the testator is signing this document with the intention of making it their Will.  The signature then follows to execute, or complete, the Will.

The testator’s signature is normally followed by an Attestation Clause, which indicates that the witnesses’ signatures are next to certify that the Will was signed by the testator with the intent and capacity to make a Will.

While the sections and clauses of a Will are fairly straightforward, the laws governing Wills are not always so simple.  Thus, it is not only important to have a valid, legal Will, but to have it updated as major life changes, such as marriage, divorce, children, or even relocation to another state, occur.

And for this, you need the assistance of a qualified estate planning attorney. For more information about drafting your Will, contact our office today.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Like many people, you may believe your Will is the document that distributes every piece of your property, right down to the last dollar.  This isn’t always the case however, as some assets are distributed according to other laws, regardless of what the Will might say.

A husband and wife for example, may own their home together. This joint ownership is called joint tenancy with the right of survivorship, and it overrides any bequest made in a Will.  If the husband passes away and the wife is still living, she automatically inherits his interest in the home and this transfer happens regardless of whether there is a Will or not.

This type of property is known as non-probate property because it does not require probate to pass from one owner to another.

In addition, a Will cannot bequeath certain financial instruments such as life insurance policies, retirement plans and investment accounts. These assets include a named beneficiary as part of the account document. When you pass away, the funds or assets within the account will pass automatically to the beneficiary you designated for your account.

So what property does a Will cover? Probate property can include:

• Bank accounts;
• Personal effects;
• Cash gifts;
• Real estate that is not owned jointly; and
• Debts and taxes owed by the estate.

Since an individual’s entire estate is often addressed in various documents and governed by particular laws, it’s important to have a comprehensive estate plan that meets your needs and addresses all the unique aspects of your estate.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

We’ve all heard of mutual funds, and most of us, especially if we have a 401(k) or IRA, probably own mutual funds.  But, do you really know what a mutual fund is?  Here’s a basic definition.

A mutual fund is an investment in which a group of investors have pooled their money and hired someone, called a portfolio manager, to invest that money in a variety of securities (such as stocks or bonds) on behalf of the group.  The portfolio manager’s job, beyond the purchase of the initial securities, is to manage the fund by buying and selling additional stocks, bonds, and other securities according to the fund’s objective, which is spelled out in a document called the prospectus.

So, when a new investor buys shares of a mutual fund, the portfolio manager takes the money invested by the new investor and pools it with money of the fund’s other investors, in order to buy and sell further securities in accordance with the fund’s prospectus.

For conservative investors, mutual funds present several advantages. One is that, for a relatively low investment, you get a professionally managed and diversified portfolio. This reduces the hassle and the risk of buying a variety of individual securities on your own.

Diversification increases your chance for steady growth over time – even if one stock does very poorly over the course of a quarter or even a year, you haven’t lost your entire investment; other securities within the fund are likely to have done well.

Further, compared to other types of pooled investment funds, like hedge funds, mutual funds are strictly regulated – this gives investors confidence in the reliability.

Like any other investment, it’s essential to do your research and get the advice of a qualified financial planner before parting with your hard-earned money.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

With the excitement of starting your family, you want to focus on your plans, hopes and dreams for the future.  Estate planning is probably the furthest thing from your mind.  Plus, you probably feel like you’re too poor to make an estate plan, anyway.  It’s something  your parents and grandparents worry about.  However, it’s never too early to plan for your family’s future.  Here are some tips:

1. Make an incapacity plan.  Emergencies can happen to anyone, not just the elderly.  If you’re in an accident and can’t take care of your own healthcare or financial decisions, you need to have a plan in place so that someone can step in and take care of these things for you.  Otherwise, your family will have to go to court and have someone appointed to do the job – a time-consuming, expensive, and emotional hassle.  There are estate planning options like a living will and an advance medical directive that you can use to deal with medical planning, and a durable power of attorney can help with financial emergencies.  But these documents have to be in place in advance.  Once you’re incapacitated, it’s too late to put an estate plan in place.
2. Put a plan in place in the event of your death.  Anyone can die at any time, and untimely death is unfortunately a fact of life. You should be prepared with a Will or a Revocable Living Trust.  Either of these documents will allow you to pass your assets on to the loved ones of your choosing, at the time and in the manner that you choose. If you die without an estate plan, also called dying “intestate” your assets will pass to your family members in the manner dictated by state law.  This may or may not be what you want to have happen.
3. Be sure to name a guardian for your children.  If both you and your spouse die while your children are still minors, someone will have to step in to take care of them.  If you leave an estate plan naming a guardian, you’ll have the peace of mind of knowing they’ll be raised by people you’ve chosen, whom you know, trust and approve of.  If you haven’t named a guardian, anyone may petition the court and, upon convincing the court they’re fit for the job, can be appointed to care for your children. Usually this is a family member, but it may not be the person you’ve chosen.

Estate planning is not just for the elderly or the wealthy, it’s for everyone.  Especially if you have a growing family, it’s the responsible thing to do.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

A Codicil is a legal document that makes specific, preferably small, changes to your Will, while leaving all of the other provisions of your Will intact. 

People who are adding a new alternate executor, for example, or changing their name because of a marriage or divorce, often add a Codicil to their Will instead of executing an entirely new Last Will and Testament.

On the other hand, sweeping changes to a Will, such as completely disinheriting a beneficiary or adding a testamentary trust, call for the Will to be rewritten.  The same is true if you’ve added several Codicils to your Will over the years.  It’s a good idea to consolidate all of the changes into a single, new, easy-to-follow Will.  This way, when it comes time to probate your Will, it will be simpler for your Executor to discern your intentions and follow your instructions.

If you decide to make changes to your Will, there are a couple of points to keep in mind:

• Whatever you do, don’t simply make handwritten changes or notations on your existing Will.  In order for changes to your Will to be valid, they have to be signed, witnessed and notorized with the same level of formality as the original.
• Even if you just think minor changes need to be made, it’s a good idea to review your whole estate plan.  Periodically, it’s necessary to re-asses your family and financial situation, and make sure your overall estate plan still meets your needs.  Does a Will still work for you, or would a Living Trust make more sense?  Do you need to think about tax planning or asset planning?  If you have questions about these things, a visit with your estate planning attorney can help make sure you’re on the right track.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Deciding who to appoint as the Successor Trustee for your Revocable Living Trust can be tough.  For a lot of people, there just aren’t many good options among their friends and family members.  Either the people close to them aren’t experienced with handling finances, aren’t trustworthy, or can’t do the job for a number of other reasons.

In this situation, it might make sense to consider an institutional fiduciary; a bank, corporation, or other professional whose job it is to serve as your successor trustee.  Here are some potential benefits:

• A corporate trustee will likely be equipped to handle all of the demands of managing your trust in-house, without looking to outsiders for help or guidance.  Corporate trustees have experts on staff to handle accounting, management, and investment tasks.  Compare this to an individual trustee, who might be relatively inexperienced and need to hire several different experts (potentially of varying quality) to help manage your trust.
• A corporate trustee will likely report to a licensing board in addition to the court.  This added degree of oversight may make it more likely that your assets will be well-managed.  Plus, a corporate trustee is likely to be insured, meaning that if something goes wrong, compensation should be available.
• Having your trust administered by a third party means that your trustee won’t get caught up in family drama.  Because a corporate trustee is, almost by definition, neutral, your trust should simply be administered according to its terms, with no bias. 

Of course, there are also drawbacks to employing a corporate trustee, the most obvious of which is the fees involved.  After all, expert advice and services are not free.  Also, having a corporation administer your trust means that the decision-making process might be slower and less flexible than it would be with an individual trustee.

However, if you’re having a hard time choosing a successor trustee from among your friends and family members, a corporate trustee might be worth considering.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

It’s not unusual for an heir to be unhappy about the contents of a loved one’s Will.  Being left out of a Will or receiving less than you expected is difficult to accept.  However, winning a Will contest (a lawsuit challenging the validity of a Will) is no easy task.

  In order to have a Will invalidated, the person challenging it has to prove one of four things:

1.       That the Will wasn’t properly executed.  This means that the Will, on its face, wasn’t signed and witnessed according to the requirements of state law.

2.      That the person making the Will lacked legal capacity.  A person can lack capacity to make a Will for a number of reasons.  For instance, children can’t make Wills because, as a matter of state law, they’re presumed to be incapable of doing so. 

When it comes to adults, lack of capacity means that you don’t understand or aren’t aware of:

• What assets you own;
• The “natural objects of your bounty” (i.e., those people, such as your spouse and children, who would normally inherit your assets); and
• The legal effect that signing your Will will have (i.e., passing on assets to certain individuals or cutting certain individuals out of an expected inheritance)

Showing lack of legal capacity means presenting witnesses to prove that the person making the Will really was not aware of what was going on at the time the Will was signed.

3.       That the person making the Will was subject to undue influence.  This is a little different than showing a lack of legal capacity.  In order to show undue influence, the person challenging the Will has to demonstrate that the maker of the Will was under the control of another individual to such an extent that he or she was powerless to exert his or her own desires, and instead, the Will reflects the desires of the influencer.

4.      That the Will is a result of fraud.  This requires proof that the maker of the Will was tricked into signing the document.  Most often, fraud is proven where witnesses can testify that the maker of the Will thought that he or she was signing another document, like a power of attorney, when, in actuality, it was the Will that was signed.

Challenging a Will and winning requires more than just showing that the document is unfair.  There’s a very high standard to meet before a court will declare a Will invalid, and most people who are unhappy about the contents of a Will never make it past the courthouse steps.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.