On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010, which includes changes to the federal estate, gift, and generation-skipping transfer (GST) tax laws for 2011 and 2012.
While the new law provides short-term clarity for estate, gift, and GST taxes, the statute is “temporary” and sunsets on December 31, 2012. Therefore, we can expect further changes to the laws in this area sometime within the next 2 years. Here are some of the pertinent changes.
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Qualified retirement plans are protected from creditors under federal law. The Employee Retirement Income Security Act (ERISA) covers 401k plans, Profit Sharing Plans, Defined Benefit plans, 412i plans, Cash Balance, and Money Purchase plans. Assuming that your plan is set up and funded properly, ERISA affords you the strongest creditor protection without giving up ownership or control of your assets. The protection is so strong that I call it O. J. Simpson proof. As a result of numerous litigations and lawsuits, O.J. had to surrender most of his assets. However, the courts, no matter how hard they tried, could not touch his NFL pension.
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401(k) rights trumped by ERISA
In a recent case (Cajun Industries v. Kidder, et al), the court ruled that despite having previously named his 3 children as beneficiaries of his 401(k) plan, a deceased plan participant’s 401(k) balance will pass to his new wife. The court determined that under the terms of the plan, a spouse’s right to plan assets is immediately vested upon marriage, and since no spousal waiver was obtained, the default beneficiary is the spouse, even though she was not the named beneficiary.
The spouse got the 401(k), and the children, who were the intended beneficiaries, were disinherited.
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One of the primary risks to your assets is a declining or sideways investment market. There are many potential obstacles that could stand in the way of the success of the typical long-only, buy and hold, stocks/bond/cash portfolio. Besides my 3 biggest concerns- the high unemployment rate, our high debt levels, and the European crisis- economist Gary Shilling gives us 9 more issues to keep an eye on.
1. U.S. consumers will shift from a 25-year borrowing-and-spending binge to a saving spree. This will spread abroad as American consumers curtail the imports of the goods and services many foreign nations depend on for economic growth.
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Welcome to our first post on our new blog! In the coming months, this area of our website is going to be a place where we communicate with you and let you know of any information, news stories, or other items that are relevant to you and your family’s financial success.
Please make sure to drop us a note if you have any ideas on topics that you would like to learn more about. We really appreciate any feedback that you can provide, and will make sure to include the content that you want to see in this section. You can drop us a note by clicking on the “Contact Us” link at the top of this page.
