Massachusetts Estate Planning & Asset Protection Blog

Supreme Court Case Puts Inherited IRAs at Risk!

Posted by Dennis Sullivan & Associates on Thu, Jan 15, 2015

Supreme Court Case Puts Inherited IRAs at Risk | Massachusetts Asset Protection Attorney



A landmark case before the U.S. Supreme Court holds that Inherited IRAs are not protected from creditors. One June 12, 2014 the U.S. Supreme Court handed down its opinion in Clark v. Rameker, which questioned whether or not an inherited IRA could be shielded from Bankruptcy. Heidi Heffron-Clark inherited an IRA from her mother in 2001 and filed bankruptcy 9 years later, the question was whether she could keep the assets held in the IRA.

The Court unanimously held that retirement funds inherited by a beneficiary from the original plan participant are not considered to be “retirement funds” within the meaning of the federal bankruptcy exemptions found at 11 U.S.C. §522(b)(3)(c).

A clear legal distinction was drawn between an inherited IRAs and those that you set up for yourself. An inherited IRA has several unique features that suggest they are not retirement assets, which were noted by the Court. Unlike IRA owners, inheritors can’t add additional funds to the account, but they can take out money at any time without penalty. Usually a participant’s own IRA is subject to early withdrawal penalties if taken out early, unlike an Inherited one. Generally, non-spousal beneficiaries of an IRA must either withdraw the entire amount within five years of the original owner’s date of death, or take out a minimum amount each year, starting by December 31 of the year after the date of death. This is true for both Roth and Traditional IRAs.

What You Can Do To Protect The Inheritance For Your Beneficiaries:       

The upshot is that Clark v. Rameker argues very strongly in favor of setting aside retirement accounts that will pass upon the death of the plan participant into a special type of trust designed to both protect inheritances from future creditors of the beneficiary, but also to ensure that the trust will qualify as a Designated Beneficiary under the Internal Revenue Code.

A Retirement Plan Trust can be created to protect all of your inheritable retirement accounts. In creating this type of trust, you are using the trust as your beneficiary instead of the individual. The beneficiary of the trust will be the original individual you wanted to benefit from your protected retirement account. This is what many would call a “work around”, which is possible even with the new supreme court case.

For more information on how to protect your IRAs, click here to download our Free Report on the IRA Protection and Maximization Trust.


At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.


Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Protective Trusts, trusts, Tax on IRAs, trust, IRA, Inheritance, Supreme court

Times Are Changing, So Are Tax Laws

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Tue, Aug 26, 2014

The Tax Game Has Changed | Massachusetts Estate Planning Attorney


Tax planning, estate tax, trust, congress


The Old Ways Don’t Work Anymore

For years, estate planners have done what is considered traditional estate planning. They drafted plans primarily concerned with minimizing future estate tax liability and gave minimal attention to income tax consequences.

This was perfectly fine years ago when the estate tax was much more severe than the potential for income tax. This was attributable to relatively high estate tax rates, low estate tax exemption that was not indexed for inflation, and comparatively low capital gains rates.

However, Congress has tinkered with the tax system in a huge way. Accordingly, the income tax impact of estate planning is taking on greater significance, especially for Massachusetts residents.


The Tax Man Cometh

More attention shall now be directed toward the importance of income tax basis considerations in estate planning due to the narrowing between the estate tax rates and the income tax rates. In fact, in most estates worth less than $5.34 million, estate taxes are no longer an issue. Now, income taxes loom large, primarily because of the lack of attention on the income tax basis (i.e. cost or adjusted basis) of capital assets. Also state estate taxes have become critically important because of the lower $1 million threshold for estate taxes in states like Massachusetts.


Failing to Update Could Cost You

The bad news for most middle-class taxpayers is that for years they've been fed a steady diet of estate tax minimizing wills and trusts. Worse yet, they hang onto outdated documents for many years, thinking they are done with their estate planning and not wanting to be bothered. Sadly, these old documents will no longer serve their intended purpose of estate tax minimization. A major problem is also created when federal estate tax minimization plans, unless they are updated, will cause a completely avoidable Massachusetts estate tax for a married couple. While there may be no federal estate tax savings with these documents, because very few middle-class taxpayers will ever pay estate tax, the documents will increase income taxes for their heirs upon sale of appreciated assets. Moreover in Massachusetts, there may not only be a completely avoidable estate tax on an additional 1 million dollars, but it may also trigger a large, completely avoidable Massachusetts estate tax on the first death.


What to Do About a Completely Avoidable Massachusetts Estate Tax

Bottom line:  the game starts anew. Let's focus on income tax minimization for most taxpayers and forget about estate tax minimization. Unless your estate is worth more than $5.34 million, your biggest risk is Massachusetts estate tax as well as overpaying income taxes due to inattention to income tax basis planning in your wills and trusts.  Don't make that mistake. Review your documents today so that you eliminate these lurking tax problems


At the Estate Planning & Asset Protection Law Center, we provide a unified education and counseling process which uses a unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Nursing Home Costs, Mistakes, Massacusetts Estate Tax, taxes, social security, massachusetts estate planning strategies, trusts, Nursing Home, tax liability, Massachusetts estate tax, tax exemption, transfer of assets, Tax on IRAs, Tax Savings, tax deductions, tax reform, trust, tax

The Roth 401(k), Tax Advantages over the Roth IRA

Posted by Dennis Sullivan & Associates on Thu, May 26, 2011


In today’s tax environment – namely, a relatively low tax rate today with the perhaps-inevitable prospect of higher tax rates in the future – many people are looking to the Roth IRA as a way to hedge their tax bets. With the Roth IRA, you pay your tax upfront on contributions to the account, and withdraw them tax-free during retirement.

You may want to investigate another lesser-known option available in many 401(k) plans called the Roth 401(k). Stuart Robertson of Forbes describes the Roth 401(k) as a Big Brother to the Roth IRA, saying the 401(k) version of the Roth is bigger and stronger in many ways than the IRA version. You can choose to put some, none or all of your contributions after-tax into your Roth 401(k) savings up to $16,500 a year in 2011, or $22,000 if you are 50 years of age or older. The Roth IRA maximum amounts are much lower: $5,000 and $6,000 if 50 or over respectively.

Additionally, the Roth 401(k) has no income limits. Unlike the Roth IRA, anyone can have a Roth 401(k), if their employer offers it. To invest in a Roth IRA and make the maximum contribution, your modified adjusted gross income must be below $107,000 if you are single, $169,000 if you are married filing jointly.

If your company does not offer a Roth option in your 401(k) plan, Robertson says you should request it. Typically, this requires an amendment to the plan, and only a minor cost to the business owner.

It’s anyone’s guess what tax rates will look like in the future, but if you believe they are only headed upward, then a Roth 401(k) may be a good way to hedge your tax bet.

For more information on tax planning, check out the Tax Planning Section of our website, and watch our video on Avoiding a 70% tax on IRAs and Retirement Plans.


Tags: Retirement, 401(k), Roth IRA, Tax on IRAs, IRA

Roth IRA Conversions as a Planning Tool

Posted by Dennis Sullivan & Associates on Wed, Apr 13, 2011

Roth IRAs have gained popularity over the past few years, and for good. However, one thing most media commentators fail to address is that sometimes the people who could benefit most from a Roth conversion are the ones for whom such a conversion could carry the highest tax liability. Peter McDougall takes stock of the issue in a recent Wall Street Journal posting, and offers the potentially powerful cocnept of a one-two punch with defined benefit plans and Roth conversions that can help take the sting out of such conversions.

If you are wealthy and planning your estate, a traditional IRA can become cumbersome because of the required minimum distributions (RMDs). RMDs are taxable income, and thereby become a tax liability, and they deplete the assets you may prefer to pass on to your family. A Roth IRA has the advantage of allowing you to escape RMDs by paying the tax upfront. But, if you’re wealthy enough to be saving your IRA for your family then you are also likely to be in a higher tax bracket and in the line for e a hefty tax hit if you don’t play your cards right. The one-two-punch wisdom comes into play if you also have a defined benefit plan to which you make regular contributions. Those contributions are also tax deductible and can be used to offset the tax-cost of the Roth conversion.

Indeed, there are a number of tricks in the article’s specific anecdote, but the essential wisdom lies in the one-two punch of recognizing a means of finding enough tax deductions to off-set the tax-hit of the Roth conversion.

You can read more about Roth Conversions in our past blogs.  Learn more about tax planning with retirement accounts on our website. To learn more about protecting your home, family and life savings, attend a free workshop on Trust, Estate & Asset Preservation.

Tags: 2011, roth conversions, roth conversions, Roth IRA, Tax on IRAs, Tax Savings

Consider the Future Taxrate on Your 401(k)

Posted by Dennis Sullivan & Associates on Fri, Apr 01, 2011

If you’ve been a diligent saver and keeping an eye on your 401(k) for all these years, it’s important to remember that the tax-man also has been looking on with interest and waiting for his cut. It’s simply too easy to forget, but a traditional IRA is tax-deferred until withdrawal, so that balance is deceiving. What is more, it means that the tax you will owe has yet to be decided. A recent MarketWatch article points out the strong possibility of higher tax rates for 401(k) savers once they reach retirement.

The value of delaying a tax hit into retirement, one of the principal benefits of a traditional IRA, has always been to avoid heftier taxes and secure what are expected to be lower tax rates whilst in retirement. Unfortunately, those expectations may not pan out for diligent savers with large IRAs. If your account is robust enough to keep you at or near your present income, then it’s also enough to keep you at or near your current tax bracket. If you are far from retirement then this may not be too distressing. After all, while you may be paying similar taxes upon withdrawal, your retirement investments are working for you with tax-free appreciation in the meantime.

Given the tax-rate outlook, savers should assess ways to diversify their tax situation in retirement. That means at least considering putting a portion of the amount you save for retirement into a Roth IRA – or a Roth 401(k) if one is offered by your employer.

“If you think taxes are going up, it makes sense to pay your taxes when rates are low, put the after tax amount into the Roth and take out your money tax-free when tax rates are high,” said Alicia Munnell, director of Boston college’s Center for Retirement Research and a professor at the school’s Carroll School of Management.

As summed up by Marcia Wagner of Wagner Law Group, “For the longest time, it seemed like almost a no-brainer that people, when they were in their income-earning stage, would be in a higher tax bracket … That may or may not be true in the future.”

For more on preserving your retirement savings, reserve your seat for an upcoming Trust, Estate and Asset Protection workshop, or check out the Planning with Retirement Accounts on our website.

Tags: Baby Boomers, 401(k), Roth IRA, Tax on IRAs, Tax Savings, IRS, IRA

The Charitable IRA Rollover--Everyone Wins

Posted by Dennis Sullivan & Associates on Thu, Mar 10, 2011

It is not uncommon for a large portion of your wealth to be concentrated in tax-deferred retirement accounts such as IRAs and 401(k)s. From an estate planning standpoint, planning for these qualified accounts brings its own sets of issues and concerns. Because of their tax-deferred nature, the tax consequences can be significant, and mistakes quite costly.

The special nature of these funds also impacts charitable giving decisions. If you want to make sizable gifts during your lifetime, you may turn to your qualified retirement account(s) for these gifts. In so doing, however, you could meet head-on with negative tax consequences.

The Charitable IRA Rollover may be one solution to explore.

The IRA Charitable Rollover allows people age 70-1/2 or older who are subject to Required Minimum Distributions to donate up to $100,000 from their IRAs without first having to recognize the IRA distributions as ordinary income, or deal with the ceiling the IRS imposes on charitable contributions. If you make a charitable contribution from your IRA, you won’t get the charitable deduction for that amount, but the income avoidance should more than make up for that.

As with all things involving the IRS, there are restrictions. The rollover is available only for traditional and Roth IRAs. If you have a Simple IRR, SEP IRA or an employee-sponsored retirement account, you can’t use this tactic. Also, remember that the rollover must be made to a “qualified charity,” and that the check must go directly from the IRA to the charity. Don’t try routing the check through you.

If you choose to make a Charitable Rollover, you will receive a 1099R from the IRA’s custodian or trustee. However, the IRS has issued a new procedure to address it on the 1040 form.

You can learn more about tax-savvy giving strategies in the Tax Planning Strategies and Estate Tax Planning: Problems and Solution pages on our website. 

Tags: Estate Planning, Tax on IRAs, Tax Savings, Charitable Giving, IRA

Some Do’s and Don’ts for Leaving IRA Assets to Your Loved Ones

Posted by Dennis Sullivan & Associates on Mon, Feb 28, 2011

If you have substantial assets in an IRA – whether a Roth or a traditional IRA – you’re wise to pay attention to how those assets might pass to your spouse or other heirs in the event of your death. Christine Benz of Morningstar Advisors last week wrote a small cache of common wisdom on the subject in the forms of “do’s and don’ts.”

What should you do with your IRA?

  • Check with your estate planning attorney before naming your beneficiaries. Remember, your beneficiary designation(s) trump whatever might be in your will, so make sure your estate planning documents and your beneficiary designations work together. An estate attorney also can advise you on the most tax-efficient uses of your IRA assets and warn you about ill-conceived designations, such as naming a minor child or your “estate” the beneficiary of an IRA.
  • Consider making a charity the beneficiary of your IRA. Depending upon your situation, this could be a tax-savvy way of supporting your favorite cause.
  • Consider whether you should convert a traditional IRA to a Roth account. Again, depending on your individual situation, this could make your retirement assets work even harder for your heirs.


 Morningstar’s top list of Don’ts:

  • Don’t fail to name beneficiaries for your IRA assets. What happens if an IRA has no beneficiary designation at all? It all depends. If that is not a good answer for you, then be sure you name a beneficiary.
  • Don’t neglect updating your beneficiary designations after life-changing events. Major life events, such as marriage, divorce, the birth of a child or the death of a loved one may require changes to your beneficiary designations. Plan to review those designations on a regular schedule.
  • Don’t name a minor child as the beneficiary of your IRA. Minor children cannot be named beneficiaries of life insurance policies, retirement plans, or annuities. If you’d like to leave IRA assets to a minor, check with an estate attorney about setting up a trust or a uniform transfers / gifts to minors (aka UTMA / UGMA) account.

For more information on estate planning strategies, sign up for a free, informative, estate planning and asset protection workshop

Tags: Estate Planning, 2011, Roth IRA, Tax on IRAs, IRA, retirement plans

Obama Budget Would Exempt IRA Distributions from Small Accounts

Posted by Dennis Sullivan & Associates on Thu, Feb 24, 2011

 Retirees with less than $50,000 in their individual retirement accounts may not have to take required withdrawals under President Barack Obama’s proposed budget.

Americans hold nearly $4.2 trillion in traditional IRAs. That money has yet to be taxed, so it’s small wonder that the government requires you to take your money out and start paying taxes on it. Required Minimum Distributions generally apply once you turn 70-1/2 years old. The required distribution amount is determined by a formula based on your account balance and your age.

Bloomberg reported last week, however, that the Obama administration proposes to do away with minimum distributions on IRAs worth $50,000 or less.

If this measure passes, it could impact a lot of people. The median amount of money held in a traditional IRA is only about $40,000. And, according to the Investment Company Institute (a Washington-based mutual-fund trade group), quite a few people would prefer to leave their money in their accounts. In fact, according to their recent study, 64% of people who took money out of their IRAs in 2008 (the last relevant year with available data) said they did so only to comply with the distribution requirement.

By foregoing distributions (if your IRA is worth less than $50,000) you could let your funds continue to grow, defer the taxes, and perhaps stretch your retirement savings a little further.

Stay tuned to this blog for updates as they develop, and check out our Tax Planning with Retirement Accounts for more tax and estate planning with IRAs, 401(k)s other retirement accounts.

Tags: 2011, 401(k), Tax on IRAs, IRA

The 7 Biggest Concerns For Your Retirement & Estate Planning (part 1 of 3)

Posted by Dennis Sullivan & Associates on Wed, May 26, 2010

With the stock and bond markets in another rollercoaster and tax rates on the upswing, many people are concerned about their retirement planning.  Whether it is a Roth conversion or how to complete a beneficiary designation, we hear many questions from our clients wondering what they should do—and what they shouldn’t!

MA Estate and Retirement Planning

Here are 7 of the some of the biggest issues you should be thinking about with your IRA’s, 401k’s and other retirement plans:

1.    Does a Roth conversion make sense?  

You probably know that 2010 is a special year for people considering converting a traditional IRA to a Roth. In this year there are no MAGI income limitations on how much you can convert. In addition, you have the opportunity to spread out the income tax you pay on your Roth conversion into 2011 and 2012, mitigating the tax bite. That means that if a Roth conversion is going to make sense for your family, now is your time.

But does it make sense? Well, that all depends. When you convert from a traditional IRA to a Roth you are essentially pre-paying the income tax that you would otherwise have paid over a period of years as you took required minimum distributions after age 70 and ½. By paying the tax now you guarantee that any distributions you (or your beneficiaries) take later will be income tax-free.

Is it worth it? It might be, depending on how long you have for the money to grow tax free, what your tax bracket is now and what your tax bracket might be in the future (consider that today’s income tax rates are at historic lows). It also depends on whether you have the cash on hand to pay the tax or if you are planning to use money taken from the IRA to pay it. If you are under 59 ½, money taken from the IRA to pay the tax will be subject to an early withdrawal penalty.

Because there are so many factors involved, a Roth conversion is something you should consider carefully. However, it is most likely to make sense for retirees under one set of circumstances—you don’t think you’ll ever need the money at all and you want to keep it growing tax free as a family legacy!

If between pensions, social security and other investments, some or all of your IRA is money you may never use, you might be targeting it as an inheritance for children and/or grandchildren. But if you live a long time required minimum distributions will mean that you have to take that money out (and pay taxes on it!) whether you need it or not. A Roth conversion will allow you to keep the money growing tax free throughout your lifetime, leaving significant growth for your heirs.

2.    Do you have the right beneficiaries?  

Many people we speak to haven’t looked at the beneficiaries of their IRAs since they first opened the account. They may have changed banks or brokerage houses, had new children or grandchildren, or even lost a spouse, all without ever thinking about what those beneficiary designations will say.

This can be a real problem! If your IRA doesn’t name a beneficiary at all, or names a beneficiary who has since passed away, it will go through probate and deal with all the costs and time delays of the court system AND an income tax payable almost immediately.

If your IRA names the wrong beneficiaries—say an ex-spouse—the consequences might be even more undesirable. Instead of an inheritance, you may have left your family a nightmarish lawsuit!

3.    Is your beneficiary’s inheritance safe?

Like most families we help, you may have taken steps to make sure your IRA reaches your children and grandchildren intact, but if they have problems of their own—divorces, lawsuits, family issues or other creditors—they may never get to enjoy that IRA. 

You may be aware that an IRA you set up for your own retirement has special protection if you are sued or become bankrupt, but an inherited IRA has no protection at all and if left to your child or grandchild outright, the entire amount of the inherited IRA will be vulnerable to all claims of creditors, lawsuits and ex-spouses.

The solution? You can establish an asset protection trust to protect your family legacy and your children.  Request a report by contacting us through our website or by calling our offices at (781) 237-2815.

Parts 2 & 3 are coming soon...To learn more about how the Estate Planning and Asset Protection Law Center can help you protect your retirement accounts for your spouse and future generations, sign up to attend a free Trust, Estate and Asset Protection workshop by calling (800) 964-4295 (24 hours) or registering on our website. 

Tags: Estate Planning, massachusetts estate planning strategies, roth conversions, Tax on IRAs, retirement plans

The Nine Biggest Estate And Retirement Planning Mistakes

Posted by Dennis Sullivan & Associates on Fri, Mar 05, 2010


Some people have suggested waiting to see how Congress deals with the estate tax before doing any planning, but waiting to plan is a big mistake! Whether or not your estate is large enough to be concerned with a Massachusetts or Federal Estate Tax, many are very worried about how they will pay for nursing home care if they need it!  

According to a recent survey, for most people, a family’s estate is consumed in the following order:

1.      Nursing homes;
2.      The IRS & Department of Revenue;
3.      Probate;
4.      Your children;
5.      Your grandchildren;
6.      A special person; and
7.      Your favorite charity.

What most people don’t realize is that you get to pick another order, but to do that you must act to get the results you want. If you are like most people, you want to preserve your home and life savings from the close to $150,000 per year nursing home costs for your spouse and plan a better legacy for your family.

Plan to protect and take control of your life savings call (800) 964 – 4295 for a free workshop or visit our

Estate Planning for Generations

Let’s assume for a moment that you have taken steps to protect yourself, your home and other assets so you do not leave all of your money to the nursing home during your lifetime. Given a choice, how would you like to leave 70% or more to the IRS and Department of Revenue? You may know something needs to be done, but making sure it is the right thing is critical! If you made some of the following mistakes, you too could leave a 70% inheritance to the IRS!

Here are nine major mistakes to avoid when planning to protect your retirement savings, including IRAs, from a Wall Street Journal article, “How Retirees Are Blowing Their Nest Eggs”:

1.      Failed Rollovers
If you let the 60-day deadline pass by it means you’ll pay income tax on the entire amount that year.  The alternative is to let your assets grow tax-free until you make withdrawals.

2.      Roth Conversion Confusion
Want a conversion? Take control – don’t leave it up to your children.

3.      Taking Too Little or Too Much
Avoid penalties by planning ahead for withdrawals from qualified retirement accounts.

4.      Missing the Low-Tax Window
If your tax bracket drops after you stop earning a regular paycheck, and you expect your tax rate to increase again when you start taking mandatory IRA withdrawals, it may make sense to withdraw from your account to avoid higher taxes in the future.

5.      Losing Out on the Stretch
Be sure to stretch out withdrawals from inherited IRAs over your own life expectancy.

6.      Naming No Beneficiary, or the Wrong One
Without naming a beneficiary, anyone who inherits the money from the IRA will lose out on decade’s worth of potential tax-free growth.

7.      Leaving Your IRA to a Trust
You can leave an IRA to a separate trust set up to maximize the tax-free growth and provide protection from lawsuits, divorces and other creditors, but you must make sure that the trust that is the beneficiary is set up correctly to provide for these benefits.

8.      Overlooking the Estate-Tax Break
When you inherit an IRA on which estate taxes have been paid, you’re entitled to a little known tax deduction called Income in Respect of a Decedent, or IRD.

9.      Not Protecting Your IRA from Long Term Care Costs
Leave your IRA to a protective trust to protect the account for your children and grandchildren if your spouse ever needs assistance paying for long term care costs.

To learn more about your opportunities and avoid the mistake of procrastination and the top nine mistakes of estate and retirement planning, act now. Please visit us at to sign up for a complimentary workshop or call (800) 964-4295 (24hrs/7 days a week). You can take care of both protecting your assets and saving taxes, but only if you take control of the order of distribution of your life savings and act to protect your spouse, home, life savings and legacy!


Tags: Nursing Home Costs, Mistakes, Elder Law, roth conversions, Tax on IRAs

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