Q: We had our financial planner look over our estate plan. She told us our IRA beneficiary setup is completely separate from how our trust distributes things. We had no idea. Is this right?
A: Your planner is absolutely right. Your IRA money won’t just automatically follow the language laid out in your trust. Unless you named your trust as your IRA’s beneficiary — something I don’t often recommend — your IRA is essentially a standalone asset with its own marching orders when you die.
Think of your estate plan as having two hands. Your left one might hold assets like your real estate, your taxable investment accounts and your bank accounts. These will go to your heirs based on your will or your trust’s language. Your right hand might hold your retirement accounts, like IRAs, 401(k)s, annuities and insurance policies. These transfer directly to the named beneficiaries that are on file for those accounts.
So, it’s pretty important that your left hand knows what your right hand is doing!
Q: You recently mentioned there’s a new tax rule that lets us deduct some of our donations even if we don’t itemize. Tell me more, please.
A: The new tax law passed last July added a new charitable deduction feature. Starting this year, you now get to use a charitable deduction on a limited basis, even if you use the standard deduction. Before this change, if you didn’t itemize, your donations weren’t deductible.
You can now deduct up to $1,000 per year of cash donations to charities. It can’t be donations of items, just cash. For married couples, the max is $2,000 per year.
For the past eight years it seems like most people didn’t really know their charitable donations were not even tax deductible. Thankfully, people were still generous anyway. But, with this added tax incentive, maybe they will give just a little bit more now.
Q: From the looks of my recent tax return, it appears I have some capital loss carryovers from a few years ago. Will these ever expire?
A: Well, there is some good news that might make you feel a little bit better. Your capital loss carryovers won’t just disappear. They just keep rolling forward until you are able to use them all up, even bit by bit.
Your loss carryovers are first used to offset any capital gains you happen to realize. And, if your loss carryovers are bigger than your realized gains — or even if you don’t have any gains at all — you still get to use up to $3,000 of your past losses each year.
You basically get to chip away at your loss carryovers until they are all gone. It might be a slow process at $3,000 a pop, but they won’t just expire unused. That is, unless you die without using them up.
By the way, the annual limit amount hasn’t been updated for inflation, ever. It was put in place in the late ‘70s and now set in stone for nearly 50 years!