Retirement accounts can be one of the largest assets that someone passes on to a loved one. However, these assets are treated differently if they are tax-deferred. If you leave a standard 401K to a beneficiary, they will pay income tax when they withdraw the money.
A surviving spouse will be required to take Required Minimum Distributions (RMDs) once they turn 70.5 years old. For non-spouse heirs, the beneficiary will have to take RMDs every year if the original account owner passes away after reaching age 70.5. But if the original account owner was under the age of 70.5 when they died, the RMDs will be based on the beneficiary's age instead. This is called a “stretch out” because the RMDs are stretched out over the beneficiary’s life, based on the beneficiary’s life expectancy as dictated by the IRS.
Not all plan administrators will allow a beneficiary to stretch out the payments. It may be worthwhile for the beneficiary to rollover the inherited 401K to their own IRA because, if you do not stretch out RMDs, the RMDs might be taxed at a higher income tax bracket!
Additionally, because 401Ks are distributed according to life expectancies, sometimes they are not the best asset to pass along to multiple beneficiaries through a trust. The IRS will force RMDs based on the life expectancy of the oldest beneficiary.
Finally, deferred tax assets should not be left in a supplemental needs trust for the benefit of a disabled beneficiary. If the trustee accumulates the RMDs instead of distributing them to the beneficiary (which oftentimes is necessary to keep the beneficiary qualified for government benefits), the IRS will tax the RMDs at the trust income tax rate, which can be as high as 37%!
As you can see, estate planning is so much more than simply drafting a will. Please contact Jesson & Rains if you would like to consult with a professional.
Many of our clients who own businesses do business under an “assumed name” (a/k/a DBA … “doing business as”). This means that the name the business operates under is different to the name registered with the North Carolina Secretary of State’s office (e.g. Jesson & Rains, LLP doing business as simply Jesson & Rains). The law in North Carolina has been, up until recently, that you had to have a “certificate of assumed name” filed in the register of deeds office for each county in which you do business.
As of December 1, 2017, a change in the law has begun the creation of a centralized database that is being run by the Secretary of State’s office (as opposed to each of the 100 county register of deeds offices located in North Carolina). This, accompanied by a new streamlined application process, will make searches of the assumed name database and filing for a certificate of assumed business name easier than it was in the past. However, the Secretary of State’s office does not yet have the database completely up and running so, for now, when applying for a certificate of assumed business name a search for the desired name must be carried out in the county or counties in which you wish to do business.
A big change that it is important to take note of is that any certificates of assumed name that were filed before December 1, 2017 will expire on December 1, 2022. This means that anyone wishing to continue doing business under an assumed name that they were using in the past will need to file a new application for a certificate assumed business name with the North Carolina Secretary of State’s office before the December 1, 2022 deadline.
For assistance or for more information please don’t hesitate to reach out to Kelly or Ed who would be happy to assist.
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