In Perspectives

Twice in the past several weeks I have encountered a tax planning opportunity that was missed by families caring for a parent with diminished mental ability or confronting other life changes. In one instance, the children of a gentleman afflicted with Alzheimer’s and requiring skilled nursing care turned to Legacy Trust for help in consolidating his financial affairs. During the initial interview with the children, we learned that the main assets included a modest trust account and a larger balance in individual retirement accounts (IRAs). We also asked about expected cash requirements, real estate holdings, Social Security and other sources of income. We found that Required Minimum Distributions were being taken from the IRA’s but, digging deeper, also discovered that medical expenses had been steadily increasing.  In fact, for the past two years, deductible medical expenses had actually exceeded reportable income, resulting in zero tax liability.

The family did not have much financial experience and knowing the IRA withdrawals would be taxable, withdrew the minimum amount required, but not the optimal amount.

We consulted with the family’s tax accountant and, based on the details we uncovered, asked him to calculate the amount of additional withdrawals that could be taken from the IRAs without incurring income tax. By increasing the IRA withdrawal to match the amount that may be offset by medical deductions, the family will, gradually withdraw the IRA funds tax free.  These funds can then be added to dad’s trust and used for his long-term care.  If their father passes away before the investments are totally consumed, the kids will have withdrawn most, if not all, of the IRA funds with little or no income tax cost. They will inherit any remaining funds tax-free.

In another case, a recent widow was left with a large IRA, bank savings, and Social Security income to live on. She has three successful children, all with income tax brackets higher than her own. Although there may be some tax on larger than required IRA distributions, the generational savings could be significant. This would be even more likely should her medical expenses begin to rise.

Baby Boomers, the largest segment of the U.S. population, are now at or nearing their retirement age.  They are the first generation to accumulate retirement funds mostly by saving and investing in 401k and other qualified plans. As they begin retirement, these funds will be rolled out to IRAs that will, in most cases, be a primary source of retirement income.  There will be more IRAs and they will be larger, on average, than in the past.  Also, the incidence of debilitating diseases such as Alzheimer’s is expected to increase proportionately with an aging population.

The pattern described above is destined to be repeated in ever increasing numbers in the years ahead.  If you encounter a similar situation, please consult your tax or financial advisor.  It could save some taxes.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.

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USA PATRIOT Act

Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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