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How Long Does it Take to Process a QDRO? What is a QDRO? Who Needs a QDRO?

[/vc_column_text][vc_column_text]When people divorce, separating finances can get complicated. And if you’re getting divorced and your spouse has a company retirement plan, you will no doubt hear the term “quad dro” or QDRO.

What exactly is a QDRO? It’s an acronym for Qualified Domestic Relations Order which is a document that you will need to divide up a retirement plan without incurring taxes and penalties. (1)

Why Is It Necessary?

In short, it allows divorcing spouses to receive their share of the other’s retirement plan assets.

Once it’s determined how much money from the plan the soon to be ex-spouse is entitled to, the QDRO permits the ex-spouse to transfer those assets to their own account, and allows them to do it without creating a taxable event.

How Does It Work?

Let’s assume John and Mary, both age 50 are divorcing. John is self-employed and funds a SEP IRA in his name and Mary works for a corporation that offers a 401k plan for which she participates in. Let’s further assume that Mary has accumulated $500,000 in her plan while John has $300,000 in his SEP IRA.

In their marital settlement agreement, John and Mary have agreed to divide their retirement accounts equally. Since they have a total of $800,000, that means each will receive $400,000.

Obviously, to equalize these accounts, Mary will have to give John $100,000 of her 401k. How will she do this?

How Can The Retirement Plan Be Accessed?

Remember, with the exception of some plans that allow “in service” distributions, Mary cannot even access the funds unless one of three things occurs. 1) Death, 2) separation of service, meaning she leaves the company for some reason, or, 3) a qualifying disability.

Even assuming she left the company, how would she transfer the funds to John? Could she
simply request a withdrawal of $100,000 and hand a check to John? If she makes this mistake, she will get hit with taxes and penalties.

Can she just tell John to put the money in his own retirement plan?

The Answer Is No.

To get the funds to John and do so without taxes and penalties, they will need a QDRO![/vc_column_text][/vc_column][/vc_row][vc_row type=”full_width_background” full_screen_row_position=”middle” column_margin=”default” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”20″ bottom_padding=”20″ overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none” shape_type=””][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” overlay_strength=”0.3″ column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]

QDRO Explained:

A QDRO is an order, generally made by a state-level court as part of a divorce or legal separation that allows a retirement plan to be split or divided so that the other spouse can receive his or her share of the marital assets without incurring penalties and taxes.

Two Parts To The Definition:

1) Qualified

This means it’s an order that deals with “qualified” retirement plans, but equally important that the order is “qualified” based on the plan administrator’s determination that the order meets the plan’s rules for the assets to be separated.

(A qualified retirement plan is one that “qualifies” for favorable tax treatment under ERISA. Retirement plans offered by most companies like 401k plans and pension plans are qualified plans.) (1)

2) Domestic Relations Order

A domestic relations order is a judgement or decree that relates to the provision of child support, alimony, or marital property rights for the benefit of a spouse or former spouse, or child or other dependent of the person divorcing.

To do this, the court allows that his share of the asset be paid to an “alternate payee”. That alternate payee must be the current or former spouse, child or a dependent of the participant in the retirement plan to be divided.

In short, it recognizes that alternate payee’s (John’s) interest in a participant’s (Mary’s) retirement benefits. (1)[/vc_column_text][/vc_column][/vc_row][vc_row type=”full_width_background” full_screen_row_position=”middle” column_margin=”default” bg_color=”#ffffff” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”20″ bottom_padding=”20″ overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none” shape_type=””][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” overlay_strength=”0.3″ column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]

Who “Qualifies” It?

A domestic relations order is qualified by a plan administrator after the administrator determines that the order meets the plan’s rules for dividing up the plan. (2)

What Is Required For The Domestic Relations Order To Qualify?

The order must contain:

1) The formal name of the retirement plan

2) The name and last known mailing address of both the participant and the alternate payee (typically former, or soon to be former spouse)

3) The social security numbers of both parties

4) The participant’s plan identification number, assuming it is different from his or her social security number which it often is. Most company plans have their own “plan ID” number which must be referenced

5) The dollar amount or percentage of the plan benefits that are to be paid to the former spouse, and the method that was used to calculate the amount that will be paid. (1)

IF it is a “Defined benefit” plan which means it is a pension plan for which monthly payments will be made, rather than a lump sum, then the document must list the number of payments or duration/amount of time that the alternate payee/former spouse will be paid.

Example:

If a 401(k) plan is being divided, it will likely be only one or two payments. Possibly one for pre-tax monies and another payment for after-tax monies (if any)

If a pension is being divided, then the alternate payee (spouse) may be receiving regular monthly payments over a period of years.

The QDRO will spell this entire out.[/vc_column_text][/vc_column][/vc_row][vc_row type=”full_width_background” full_screen_row_position=”middle” column_margin=”default” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”20″ bottom_padding=”20″ overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none” shape_type=””][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” overlay_strength=”0.3″ column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]

Do ALL Retirement Plans Require a QDRO?

NO.

You don’t need a QDRO to divide IRAs, tax-deferred annuities, or government retirement plans like military, federal, state, county, or city pensions or retirement plans. (3)

You DO need a QDRO to divide:

401(k), 403(b), and 457 plans
profit-sharing plans
money purchase plans
thrift plans
employee stock ownership plans
TSAs (tax-sheltered annuities often available to teachers and other non-profit organizations)
business/corporate defined benefit or pension plans. (3)

A QDRO Only Applies To Plans Covered By ERISA.
What’s ERISA? The Employee Retirement Income Security Act that covers private sector pension and retirement plans.

There are other orders similar to QDROs that cover the division of military, Federal or state or municipal retirement plans.

Who Should Prepare The QDRO?

QDROs may seem easy to prepare, however rules that govern QDROs and retirement plans are complex and constantly changing.

A QDRO must be drafted to meet specific legal criteria for the particular plan it’s supposed to divide. Using a cookie cutter approach to a QDRO can result in an incorrect division of benefits, and loss of rights under a plan, AND a loss of benefits when the participant dies.

Experienced family law attorneys often don’t prepare QDROs and outsource to QDRO professionals. Just as doctors refer to other specialists. The bottom line – if you need a QDRO, hire a QDRO attorney. (3)

What Happens Next?
Once prepared, the QDRO, it must be approved by the court, and then the document is sent to the HR or payroll department of the 401k plan so the plan administrator can review the document and make sure it’s complete. For professionally prepared QDROs this is rarely a problem.

How is the payment of benefits made to the alternate payee/former spouse?
If a plan allows lump-sum distributions (like 401(k) and profit-sharing plans typically do) the alternate payee can receive their share in a lump sum payment and do a rollover to their IRA or other eligible plan.

They simply direct the plan administrator to make the check payable to their IRA or plan and incur no tax on the transfer.

And this is really the whole point. To enable the spouse to receive his or her share of the divorcing spouses benefit without tax or penalty. (4)

Defined benefit plans and pensions generally pay benefits in monthly installments. With these types of plans, the alternate payee will typically receive monthly payments for a set period of time.

The alternate payee or recipient will then direct the plan administrator to issue a check to his IRA or some other qualified plan to complete a tax free rollover so that the recipient isn’t taxed. This is a huge benefit that allows the couple to divide these assets so that there is no tax liability.

How Long Does It Take To Process A QDRO?

Unfortunately, processing a QDRO can take many months. There are a lot of moving parts that have to be accounted for. First the attorney must help you draft the document, then the opposing attorney must review it. Once the two attorneys have dealt with the document, it is sent to the financial entity that holds the money for approval. Next, the QDRO is submitted to a judge who approves it or asks for changes and then sends it back to the attorney. Finally, the approved document is sent again to the financial entity and they disperse the money. As you can see, this is a complex process that involves the approval on many different parties.

As there is no specific time limit that the directions in the QDRO must be carried out, it all depends on how quickly the lawyers, judges, and the party actually holding the money can execute their parts of the process.

Where Do I Start?

If you don’t know where to start with the QDRO process, consider reaching out to your financial planner or advisor for direction. If you don’t have a financial planner, it may be time to find one in your area who specializes in divorce financial planning. Vector Financial Solutions serves North County San Diego including Escondido, San Marcos, Poway, Rancho Bernardo, 4S Ranch, and and has helped many clients craft plans to fit their needs. Call 760-741-3159 or visit their website at vectorfinancialsolutionsinc.com.

(1) US Department of Labor at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/qdro-overview
(2) http://en.wikipedia.org/wiki/qualified_domestic_relations_order
(3) http://www.divorcenet.com/states/california/qdro_frequently_asked_questions
(4) http://www.Abaretirement.com

The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by Sagepoint. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Registered Representative may only discuss/and or transact securities business with residents of the following state: AR, AZ, CA, CO, DE, FL, GA, HI, ID, IL, LA, MA, MD, MN, MO, MS, NM, NV, NY, OK, OR, PA, SD, TX, WA.

Securities and investment advisory services offered through Sagepoint Financial Inc. (SPF), member FINRA/SIPC. SPF is separately owned and other entities and/or marketing names, products or services referenced here are independent of SPF. Sagepoint Financial does not provide tax or legal advice.

David Wilson, writer at Financial Truths, is also a financial advisor and Certified Financial Planner® at Vector Financial Solutions, Inc. Vector Financial Solutions is located at 139 E. 3rd Ave., Escondido, CA 92025 and by phone at 760-741-3159.

Examples used as hypothetical illustration only, actual results will vary.[/vc_column_text][/vc_column][/vc_row]

Sunday Radio

When I drive around on Sunday, I put on the radio and almost every AM station has some financial “show” on it.

Some are real shows, but most are paid advertisements masquerading as advice.

It’s the so-called “safe money” pitch.  And before we go further, let’s start with what qualifications are needed to recommend (sell) these complex strategies that will do all these amazing things.   Ready?

A life insurance license.

What?

Yes.  A life insurance license that can be had with a small amount of study and paying a few state licensing fees in about a week.

Wait, but the guy on the radio said he was a financial advisor.

And I can call myself a car mechanic.  Even though the extent of my abilities is limited to changing oil.

You see, anyone can call themselves a financial advisor if they happen to sell a financial product like life insurance or an annuity.

They can be good salesman and have done it for many years, but the fact remains they sell and are trained to sell life insurance and annuities.

And if that’s the extent of what’s in your toolbox, that’s what you’re going to recommend. 

So it’s no wonder that people limited to selling life insurance products are going to attack real financial advisors and condemn the products and solutions they use.

It’s generally some variation of the “safe money” idea.  It’s a fear-based sales pitch which goes something like this.

• The stock market is a casino. If you’re like “most people” you can’t afford to put your hard-earn money at risk by gambling.
• Why would you ever invest your retirement funds in anything that puts your principal at risk?
• You can’t afford to lose 50% in the stock market crash like the one that happened in 2008.
• You need guarantees!
• Are you paying fees to a broker? Why?  Why would you pay fees when there are no-fee products available to you that your advisor has not told you about?
• With our products, you get upside participation in the market but never lose money.

You can have it all!

Let’s take these arguments one by one.

The stock market is a casino.

If the stock market is a casino, why do almost all pension funds – who have a fiduciary obligation to their clients as retirees- invest billions of dollars in stocks?  Is it because they aren’t enlightened to the local radio insurance salesman who has better solutions?

Or could it be that while stocks are highly unpredictable in the short run, that they’ve been very predictable as a long-term asset to accumulate wealth?  Hmmm.

Why put your principal at risk?

Is variable daily pricing the same as putting your principal at risk?  Using this logic, maybe I shouldn’t own a home.  After all, my house price changes in value every day and is, therefore a risky investment that I should not own.  It could go down in value and I could lose.

So let’s separate the idea of principal fluctuation with the idea of losing your entire principal.

Yes, if you own a diversified fund your price will change every day. And if you sell when your principal goes down, you have lost money.

Now why would anyone invest in something that goes up and down when they could have a principal guarantee?

It’s pretty simple.  Investments with a stable, fixed and guaranteed principal have really lousy returns.  Real close to zero in many cases.

You can’t afford to lose 50% like everyone did in 2008.

Think about the billions of dollars across the US that are invested in stocks.  This includes huge pension funds and other retirement savings accounts.

I would guess that most of them didn’t lose 50% in 2008.

How can that be?

It’s because while their account statements – the value on paper showed a loss as values declined – most likely never sold at the bottom and realized that paper loss.

So they didn’t lose 50% because they didn’t take it!  They were smart enough to know that the market typically recovers so they held on to their investments.  And guess what.  The market recovered.

Are you paying fees to a broker?  We have no fees.

1. Then how are you compensated? You’re paying for this so-called radio show.  Are you selling these products out of the goodness of your heart?

Insurance products pay commissions to these guys.  There’s nothing wrong with that, but whether it’s a fee or commission, the customer is ultimately going to pay for it somehow.

That’s like that state of California telling me it’s not raising taxes, but has a “small increase” in fees.  Who cares?  It’s a cost to me.

These commissions are built in expenses.  They become real to you if you ever want out of your insurance product early via surrender charges, which can be significant, or your surrender or cash value in which you can get back far less than you put in.

You get “upside participation” in stock market growth. Sometimes they call it a “reasonable” rate of return?

Gee that sounds great.  But how much participation is that?  And how “reasonable” is it?

In the case of an annuity, how about this.

Year one.  You invest $100,000.  The market goes down 10%. This amazing product doesn’t go down, but you earn zero interest.  So far, that sounds OK.

Year two.  The market is up 15%.  Wow.  You get to participate, so that means you’ll earn 15% right?  Ah, no.  In fact, you will have a 100% “participation rate”, but the insurance company will “cap” that.  Right now, that cap in most products is about 3.5%.  That means you will earn 3.5% when the market went up 15%.

“Wait, that isn’t fair!”

Well, there’s no fee, but this product cost you 15-3.5 =11.5%.  That’s the amount you didn’t get while the market went up.  But don’t worry.  That’s not a fee.

“Wait, that’s not reasonable either.”

Well, reasonable is all relative.  It’s better than earning 0.25% in a bank account where your principal is guaranteed. So by comparison, 3.5% looks OK. 

“Forget it.  I want my money back.”

Sure no problem.  But you’ve only been in two years.  And this product has 10 year surrender charges that decline each year.  Right now, the surrender charge is 9%, so the insurance company will keep $9,000 and you get $91,000. But don’t worry, that’s not a “fee” either.

Conclusion

I want to make it clear that the right annuities, those with low surrender charges and the highest cap rates can have a place in a portfolio for a portion of client assets.

But unfortunately, they’re often not sold that way.  Many use fear-based selling to encourage clients to put all of their assets in these products.  So rather than using annuities as a fixed asset class in an allocation, they sell it as the only investment you’ll ever need.

In treating people this way, they’re planning for their retirement, not yours.

Securities and advisory services offered through Sagepoint, Member FINRA/SIPC, a Registered Investment Adviser.

The opinions voiced in this article are for general information only.  They are not intended to provide specific investment advice or recommendations for any individual and do not constitute and endorsement by Sagepoint.  To determine which investments may be appropriate for you, consult with your financial professional.  Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.[/fusion_text]

Actors can be convincing! That’s why gold sellers use veteran actors to look like trusted advisors who pitch gold as a great way to protect your future from inflation, financial collapse, and as a good investment.

The pitch sounds compelling. After all, with a cheap money policy and low-interest rates, and a government who seems to bring us to the brink of a shutdown every so often, one can make a an argument that inflation will be rampant and the world is falling apart.

A single dollar invested in stock in 1802 grows to more than $669,000 after inflation by June 30, 2012. (1)

Whereas a dollar in Treasury bonds grows to $1, 633, (2) and a dollar in Treasury bills to only $284.” (3)

And gold?

“A nugget of gold bought in 1802 and put in a vault to be opened 210 years later would have soared all the way to $4.35, representing a gain of less than 1% per year.” (4)

To sum it up, the values of these assets if invested in 1802 are:

Gold has other shortcomings as an investment. If you want real physical gold, you can buy coins or bullion but will likely pay storage costs for bullion. If you choose to buy coins to keep at home, it’s at risk for theft, so you’ll likely need a safe. Or you can pay to rent a safe deposit box at the bank.

You can also buy gold funds and ETFs to help track the price of gold which is not a bad way to participate if you want a security to track the price of gold. But keep in mind if you’re buying gold as a safe haven, you still don’t have physical gold and still have to liquidate a security.

Given what we know, if gold doesn’t seem to be a very good investment, then why do we hear so much about it?

Partly because gold can be a good fear trade, and gold sellers prey on this fact to scare people into buying, and use selective time frames to demonstrate gold’s value.

For example, after the financial crisis between October 2008 and September 2011 the price of gold almost tripled from $681 to $1,920 per ounce as people drove up the price in fear and in anticipation of higher inflation and a growing national debt. (5)

This period of appreciation is frequently used by gold’s pitch men who tell us that an investment in gold would have done better than the “risky stocks” you owned.

While the 210 years in Jeremy Siegel’s analysis may not be meaningful, well how about a longer, yet more reasonable period – like 25 years?

1n 1980 gold was valued at approximately $400 per ounce. 25 years later in 2005, gold was priced at the same $400 per ounce! Yes, you read that correctly.

Gold prices hovered around $400 per ounce for 25 years during which time it paid no dividends, you likely incurred annual storage costs, and you had nothing to show for your investment 25 year later! (2)

Keep this in mind the next time you hear gold is great long-term investment.

Jeremy Siegel Nov 2012 as part of a symposium on investment. Figures measured after inflation. Taxes are not taken into account.

(1) Stocks. William Schwert – historical stock price series dating back to 1802-1870.. Period of 1871 -1925, the Cowles Foundation. Period of 1926-present, S&P 500 stock index. Figures display what one dollar invested in various asset classes in 1802 would have accumulated to and referred to as total return indexes which assume all cash flows, interest, dividends, capital gains are continually reinvested in the relevant asset.

(2) Long-term bonds-. Sidney Homer presented a series of long-term government yields in his classic work, A History of Interest Rates that uses the minimum yield on Treasury bonds and high-grade municipal bond yields from 1800 to 1865 and high-grade municipal yields from 1865 to 1917. This is the high-grade bond series depicted.

(3) Short Term Bonds- Siegel constructed a synthetic short-term government series that removes risk premium on commercial paper using the relation between short and long-term interest rates that prevailed in Britain during the 19th century. The U.S. series assumes that the term structure of high-grade interest rates was the same over concurrent five-year periods in the U.S. and in the U.K. Figure C shows the short-term, risk-free series, along with other available short-term rates.

(4) Gold – The gold series represents the value of gold measured at the market price. Until the mid-1960s, this price was controlled by the government; furthermore, U.S. citizens were not allowed to hold gold in monetary form between 1933 and 1970. Value of one dollar of gold bullion purchased in 1802.

(5) goldsilverworlds.com/gold-price Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance is not a guarantee of future results.

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by Sagepoint. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.

Investments in commodities may be affected by the overall market movements, changes in interest rates and other factors such as weather, disease, embargoes and international economic and political developments. Commodities are volatile investments and should form only a small part of a diversified portfolio. The use of derivative instruments may add additional risk. An investment in commodities may not be suitable for all investors.

Investment in stocks will fluctuate with changes in market conditions.

Government bonds and treasury bills are guaranteed by the U.S. Government and, if held to maturity, all bonds offer both a fixed rate of return and fixed principal value.

One of the questions I’m often asked by people who own trust is, “what belongs in my trust?” or “what assets should be registered in a trust?”

What is a living trust?

It is a written legal document that partially substitutes for a will. With a living trust, your assets are put into the trust, for your benefit during your lifetime, and then transferred to your beneficiaries when you die. (1)

As you know, trusts can be a good thing to have because they can often eliminate the cost, expense, and lack of privacy of probate.

They also clearly spell out what happens upon death, and can be very simple or as detailed as the drafter of the trust chooses.

So now that you’ve done a good job in getting a trust, what goes in my trust?

First, most valuable assets should go in the trust. First and foremost, you probably want to register house and other real estate you may have in the trust.

How to Register Your House or other Real Estate in Your Trust

To do this, you can have your attorney do it, or do it yourself. If you have the time to fill out some forms and do a little research, you can do it yourself. Instructions are on most county websites. For example, this info from the Sacramento county law library recommends the following steps to transfer real property to your trust. (3)

1. LOCATE THE CURRENT DEED FOR THE PROPERTY– can’t find it? Order a copy from the county recorded. Small charge and usually takes about ten days. You will need it.
2. DETERMINE WHAT TYPE OF DEED TO FILL OUT – for trusts; it will be a grant deed rather than a quitclaim deed to transfer to a trust.
3. DETERMINE HOW THE NEW OWNERS WILL TAKE TITLE. Like changing from joint tenants to your new trust.
4. FILL OUT THE NEW DEED (BUT DO NOT SIGN)
5. CURRENT OWNERS OR DISCLAIMING PARTIES SIGN THE DEED IN FRONT OF a NOTARY.
6. FILL OUT THE PRELIMINARY CHANGE OF OWNERSHIP REPORT– again, you’ll be changing from joint tenants for example, to the trust.
7. RECORD THE DEED AND FILE THE PCOR AT THE RECORDER’S OFFICE – The Recorder’s Office charges a recording fee.
8.  FILE ANY REQUIRED PROPERTY TAX REASSESSMENT EXCLUSION CLAIM IN THE ASSESSOR’S OFFICE.

This means your property won’t be reassessed for tax purposes (which could increase your taxes) because changes in the holding of title but not ownership do not require a reassessment.

How can you tell if your house has been registered in your trust?

Look at your property tax bill.

People who have had trusts for years may want to confirm that their house is in fact in their trust. To find out, just get a copy of your tax bill and read it, or log on to your tax collectors site and do a search.

Your name should somewhere list Trust, or may abbreviate it as TR. This way, you know you’re covered.

What else goes in your trust?

Stocks, bonds, and brokerage accounts that are NOT retirement accounts should probably go in  your trust.

To do this, simply contact your broker or advisor and he or she should be able to produce the documents. (and do help you complete the paperwork at no charge)

While you may need to provide the advisor with copies of the pertinent pages of the trust – usually the first couple of pages that state the name and date of the trust, trustees – and the last page which shows the notarized signatures, brokerage firms now simply have their own trustee certification forms.

This short form is complete in lieu of you having to provide your advisor with trust copies, and you simply list the name and date of the trust, the tax ID number, and the trustees sign. These forms also typically have a checklist as to what rights the trustees have, and whether or not the trustees can act independently or not.

This can be an important point if you have trustees that live far apart where obtaining signature is not always easy. This is often the case with widowed retirees who may have their adult children as co-trustees.

Do I need to notify my lender if I have a mortgage on my house that it’s going into a trust?

Probably not, but it may avoid confusion in the future. The loan was made to you personally and the lender will generally not register the loan in your name, although they will allow the property to go into the trust without a problem.

What about IRAs and Retirement accounts?

No!

Trusts cannot own IRAs and retirement accounts because by law, such accounts must be owned by a participant. So be careful not to try this maneuver because if an incompetent attorney or advisor submits paperwork to take your name off a retirement account and the
trustee is foolish enough to actually do this, you could immediately create a taxable event.

Unlikely, but don’t try it.

Trust as Beneficiary

You may make the trust the beneficiary of your IRA or retirement account, but it’s generally better to have individuals as primary beneficiaries to allow for a “stretch IRA” option, and list the trust as a contingent beneficiaries.

Some IRA trustees may “look through” the trust if it’s property written, but some will not. Better to not tempt fate unless you’re very clear about this provision and use individuals (as many as you want) as primary beneficiaries.

Annuities and Insurance Policies?

Any asset that allows for a designation of a beneficiary generally avoids probate. So if you don’t have a trust but own annuities and/or insurance policies that allow you to specify your beneficiary, those assets will pass on death directly to the people listed. No probate.

What about ownership of an annuity or insurance policy?

You may be wise to have the annuity owned by the trust. Not to avoid probate but because if the owner becomes incapacitated and cannot act, the trust will have successor provisions that will avoid family members having to go through the process of obtaining a power of attorney.

Taxes and the Cost Basis

Besides saving probate expense and time, there can be an important tax benefit if a couple holds an asset in a trust rather than joint tenancy with appreciated property.

Example:
John and Mary paid 100k for a house that’s now worth 500k. As joint tenants they each own half, and therefore, have a 50k basis are sitting a 250k house each. If John dies, his half gets stepped up to the current value of 250k. Mary goes to sell and now gets no such step up and
has a 200k gain on her half.
Had they owned this asset in trust, the entire house would have received a stepped up basis on death. (4)

Other options

IF you don’t have a trust, there are other techniques to avoid probate. TOD (Transfer on Death) registrations are now allowed at most banks and brokerage firms. In short, this allows you to appoint a beneficiary on your individually held asset. Upon your death, the asset passes to the beneficiary upon your death

How many beneficiaries?

As many as the form will allow, and more.

What does NOT go into a living trust?

Property of little value : Such property may not need to go through probate or it may have a quicker process.
Personal checking accounts Checking accounts sometimes don’t go in a trust because money goes in and out of them so frequently. But there may be good reasons for elderly people who have co-trustees, accounts with large balances. It’s also a good idea to have a bank account that matches your brokerage account. This way, if you get a large check payable to your trust, you can cash or deposit it. Banks no longer allow you to deposit trust checks in your personal account.
Property you buy or sell frequently : This is important if you do not expect to own the property when you die.
Cars : Most cars are not very valuable, and insurance companies may not want to insure a car owned by a trust. If your car is valuable, check with your insurance company before putting a car in your trust.
IRAs, 401(k) s, etc .: These accounts can’t be owned by a trust but money from them still avoids probate if you designate a beneficiary.
Life insurance: Life insurance proceeds are distributed according to your policy. The beneficiary named in that policy will receive the money.

(1) http://www.calbar.ca.gov/Public/Pamphlets/LivingTrust.aspx#1
(2) https://www/legalzoom.com/knowledge/living-trust/topic/transferring-property-living-trust
(3) http://saclaw.org/wp-content/uploads/sbs-completing-and-recording-deeds.pdf
(4) http://www.aboutlivingtrusts.com/ElderLaw%20Newsletter/Step%20Up%20In%20Basis%20With%20A-B%20Trusts.htm

Investing for your current financial situation and your future can be complicated which can lead to many people making mistakes. Here’s a list of some of the most common investment mistakes.

1. Lack of Proper Diversification

As famed investor John Templeton once said, “The only investors who shouldn’t diversify are those who are right 100% of the time.” (1)

Why?  A portfolio consisting of multiple investments with the similar return potential and low correlation to each other has historically offered better risk adjusted returns to a portfolio of highly correlated investments with similar return potential.(2)

An important principle of Diversification is finding and investing in assets with low correlation to each other. What is correlation?  It’s the amount of the movement in one investment that can be explained by the movement of another investment.

Therefore, the goal is to seek out investments that are not perfectly correlated.

Diversification is not a cure all and it can’t protect against losses.  But it’s important to be aware of as you set your own investment allocation.

That allocation should include determining when you will need the money, and your tolerance for risk and fluctuation.  Everyone is different

The idea is that when some investments aren’t performing well, others that may be doing well can balance things out. (2)

2. Too Short of a Time Horizon

If you are saving for retirement, what the stock market does this year or next shouldn’t be the biggest concern.

Even if you’re retiring at age 70, your lifespan may be longer than you expect.  Many people now live well into their 90s.  If you expect to leave some assets to your heirs then your time horizon is even longer.  Investors can be too focused on the short-term.

 3. Focusing on the Financial Media

There is almost nothing on financial news shows that can help you achieve your goals. Turn them off.

There are also few newsletters that can provide you with anything of value. Even if there were, how do you identify them in advance?

Think about it – if anyone really had profitable stock tips, trading advice or a secret formula to make big bucks, would they sell it for $49 per month?  Not likely.  Instead, they’ keep it quiet, make their millions and wouldn’t be selling newsletters.  Remember, there’s a lot of money in selling information.  Useful or not.

4. Checking account balance online too often and making decisions based on daily movements

We have almost unlimited and fast access to information.  That’s not always a good thing.

Remember that your daily account value is a snapshot of a moment in time.  Daily movements are often not representative of what the future holds.

Monitor your investments, but make decisions based on long-term goals.

 5. Freaking Out in Market Drops

Prepare for volatility. Wall Street can be scary. This isn’t new. The 2008-09 market meltdown saw the Dow lose significant value in less than a year.  Many investors who saw their assets disappear on paper pulled out at the worst possible time—the bottom.

Yet five years from that 2009 market bottom, the Dow was up roughly 10,000 points to a record 16,000-plus.   (4)

6. Basing investments on whether the market will go up or down

Timing the market to invest when the market is on the upswing, and pulling it out when the market is on the downswing are rarely successful.

Market timing rarely works because you have to make two predictions.  First when to get out to reduce losses.  Second when to get back in to participate in gains.

Remember, financial “gurus’ make money by selling newsletters and making predictions.  If their predictions were really accurate, they’d be too busy investing to sell information. (5)

7. Hindsight error

Because you see the past clearly, you think you’ll also be able to tell the future. Hindsight error is common because many people are convinced they saw the crash coming in 2007. In reality, they may have thought a crash was possible, but they also thought the market might continue to zoom upward.

(1) https://whatwouldjohntempletonsay.com/2009/09/29/lauren-templeton-on-john-templeton-and-diversification/
(2) http://seekingalpha.com/article/1204841-the-importance-of-correclation-in-diversification
(3) http://www.msn.com/en-us/money/mutualfunds/8-biggest-mistakes-investors-make/ss-BBcCVdi
(4) http://finance.yahoo.com/echarts?s=%5EGSPC
(5) https://www.amazon.com/Mistakes-Every-Investor-Makes-Avoid-ebook/dp/B00LIV4N94?ie=UTF8&*Version*=1&*entries*=0

The opinions voiced in this article are for general information purposes only. They are not intended to provide specific advice or recommendations for any individual, and do not constitute an endorsement by Sagepoint. Please remember that investment decisions should be based on an individual’s goals, time horizon and tolerance for risk.