3 Wealth Transfer Strategies to Help with Changes to the “Stretch IRA”

Since the passing of the SECURE Act, many account holders of IRAs are concerned for the tax burden on their heirs since the abandonment of the so-called “Stretch IRA.” Below we highlight 3 potential wealth transfer planning opportunities that we may discuss with our clients:

  1. Life Insurance
    1. Due to the loss of the ‘stretch’, it may be helpful for clients who are intending on transferring the asset to heirs, to consider re-positioning strategy in which life insurance is purchased with annual taxable withdrawals from the IRA. Because the inherited IRA must be distributed within 10 years under the Act, this approach, referred to as the IRA/Qualified Plan Max strategy, may provide a larger tax-free legacy for heirs, while minimizing the income taxes for the beneficiary.
  2. Charitable Remainder Trusts (CRTs)
    1. Consider that it is possible to name a testamentary CRT as beneficiary of the retirement assets in order to mimic what the ‘stretch’ would have looked for the children. That is, the account owner can plan on having the retirement assets distributed to the CRT at his/her death, and the trust will then make an annual distribution to the account owner’s children (as non-charitable income beneficiaries of the trust), each year for their respective lifetimes. At the death of the lifetime trust beneficiaries, the remainder of the CRT balance will then transfer to charity. Although the assets will be included in the owner’s estate at death, he/she will receive a charitable contribution deduction based on the federal 7520 present value rate and the ages of the children at that time. While the children will owe taxes on the distributions they receive from the CRT during their lifetimes, the CRT assets will continue to grow tax-deferred. During lifetime, the account owner may be able to carve out a portion of the IRA income to purchase life insurance to replace the value of the IRA transferring to charity.
  3. Review IRA trusts
    1. Because the ‘stretch’ option in an IRA may be eliminated under the SECURE Act, trusts drafted in the past to receive IRA assets on behalf of beneficiaries should be carefully reviewed. That is current IRA assets transferring to non-spousal beneficiaries generally need to be distributed within five years after the death of the account owner. By having these retirement assets transfer to a ‘look-through’ trust instead—with children as beneficiaries of the trust—the trust would ‘stretch’ distributions over the life expectancy of the oldest beneficiary. These trusts may not make a lot of sense any longer under the SECURE Act since the ‘stretch’ would be eliminated. Moreover, the fact that the assets will need to be distributed over a ten-year period under the Act, the benefits of using such a trust likely does not outweigh the high tax rates that come with the arrangement. Thus, this presents a good opportunity to review your estate documents with your attorney.

These are just a few strategies that may be a potential solution to help alleviate any new concerns derived from the changes of the SECURE Act, specifically to the “Stretch IRA.” A lot of the above aforementioned strategies involve careful estate examination. Vertex Planning Partners welcomes the opportunity to meet with you and your attorney to ensure that the strategy is executed properly. Vertex Planning Partners works with attorneys specializing in complex estate matters. Contact an advisor at Vertex to learn more about how these strategies could potentially help your legacy.

 

The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

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Peter M. Babilla, CFP®, CRPS®

SENIOR WEALTH ADVISOR

Peter Babilla brings 40 years of experience in investment management and fiduciary* financial consulting to Vertex Planning Partners, LLC.

Pete graduated from Indiana University in Bloomington, Indiana with a Bachelor’s of Science in Finance.

He began his career in 1983 with a focus on institutional fixed-income portfolio management, primarily working with community banks. After a decade serving institutional clients, Pete shifted his focus to working with individuals, families and business owners, providing guidance and education in all areas of Wealth Management.  Among his areas of focus are accumulation and retirement planning, investment management, risk management, and estate and wealth transfer.

Pete’s planning philosophy allows him to create a personalized program for clients, based on their own unique goals and circumstances.  The extensive investment and planning platform offered by Vertex enables him to create a highly customized program, tailored to each individual client.

Pete and his wife Suzanne have two children, and have resided in Wheaton, Illinois for the past 30 years.  He enjoys golf, reading, and traveling with his family.  Pete gives back as a past Board Member of the Epilepsy Foundation of Greater Chicago, where his focus is on improving the lives of those living with epilepsy.

Pete works as fiduciary for his clients and holds the CERTIFIED FIANANCIAL PLANNER™ (CFP®) designation and the Chartered Retirement Plan Specialist (CRPS®) designation.

JUSTIN J. D'AGOSTINO, CFP®, CRPC®, AIF®

PRIVATE WEALTH ADVISOR

Justin D’Agostino joined Vertex Partners in 2019 and is a Private Wealth Advisor that serves a select group of business owners and affluent families. He specializes in investments, financial planning, and succession planning. His interest and knowledge in providing comprehensive financial planning and wealth management services to clients was sparked when he worked at a boutique tax and wealth management firm in Michigan. He has nine years of experience in the financial services industry, and his mission is to provide every client with targeted, comprehensive financial advice and to help them implement customized strategies designed to move them closer to accomplishing their unique goals.

Justin attended Hillsdale College where he earned his BA in Accounting and Financial Management and was a member and captain of the football team. Justin is a CERTIFIED FINANCIAL PLANNER™ Professional, holds the Chartered Retirement Planning Counselor™ and Accredited Investment Fiduciary™ designations.

Justin and his fiancé, Alexandra, reside in Chicago, Illinois. He is an avid sports fan and enjoys golfing, playing soccer and spending summer weekends with his family.

Scott A. Sandee CFP®, CIMA®, CPWA®, CEPA

MANAGING PARTNER

Scott Sandee brings over 20 years of experience as Managing Partner. He is responsible for leading the firm’s efforts in assisting middle-market business owners and seven and eight-figure families to plan and realize financial goals based on their unique aspirations and situations.

With a privately held family business background, Scott has helped owners prepare for and execute a successful transition. In addition, he works with business owners and their advisors to develop financial strategies to maximize sales proceeds and minimize future taxes.

Before joining Vertex, Scott served in financial planning and investment strategy roles at Oxford Financial Group, Capital Group, and The Northern Trust Company, working with Chicago’s HNW/UHNW families clients.

Scott holds the Certified Financial Planner®, Certified Private Wealth Advisor®, Certified Investment Management Analyst®, and Certified Exit Planning Advisor designations. Scott earned his B.S. in Computer Science from Northern Illinois University, and his family resides in Wilmette, IL.

Julie Hupp CFP®, MBA

PARTNER

Julie Hupp, CERTIFIED FINANCIAL PLANNER™ professional, has worked in the accounting and corporate finance field since 1987. She began her career as a CPA with Deloitte & Touche, specializing in the financial needs of small businesses. Then spent the next 13 years in corporate financial planning and business development at Baxter and TAP Pharmaceuticals. Recognizing her passion for personal financial planning, Julie started her business in 2006 where she focuses on comprehensive financial planning strategies and implementation.

Julie graduated from University of Illinois with a BS in Accountancy. She received her Master’s in Management with a concentration in Finance from Northwestern University’s Kellogg School of Management in 1994.

Outside the office, Julie is the co-founder of the 12 Oaks Foundation, which has merged with Cal’s Angels, and is a former Board member. Julie enjoys cooking, reading, running, triathlons and doing almost anything outdoors. A great weekend is spending time with her husband and two adult kids boating at their lake house in Wisconsin.

Steven P. Franzen, CPA, PFS, CGMA

MANAGING PARTNER

Steven P. Franzen, CPA, PFS, CGMA is a public accountant and consultant with more than 23 years of experience helping individuals and businesses reduce their tax liability.  He began his career under the guidance of Patrick M. De Sio, CPA, CGMA and in 1996 became Mr. De Sio’s partner in De Sio, Franzen & Associates, Ltd. Steve’s expertise include entity design, complex tax strategies and multigenerational wealth transfer.  As Managing Partner, Steve conducts his practice under the philosophy that the client’s investment in their CPA should yield a return on that investment – most of the time that return is realized when working with clients on planning for their future. In an effort to increase the planning capabilities of the firm,  Steve formed Vertex Accounting Partners, LLC to ensure their guiding philosophy will continue well into the future.

Steve is a certified public accountant and has earned the professional designations of Personal Financial Specialist and Chartered Global Management Accountant.  He is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society.  Steve earned a B.S. degree in accounting from Millikin University.  He and his wife Kristie live in Sugar Grove, IL with their three children.

Gregory P. Benner, CPWA®, CFP®, CLU®, CHFC®, AIF®, RMA®

MANAGING PARTNER

Gregory P. Benner, CPWA®, CFP®, ChFC®, CLU®, AIF®, RMA® has over twenty-two years of experience as a financial advisor. Greg’s practice is based on developing holistic financial plans that help his clients integrate sophisticated retirement, tax, risk management and estate planning strategies into an actionable plan, then stay the course as their behavioral coach.

Prior to founding Vertex Planning Partners, LLC, Greg spent four years as a founding partner of a Registered Investment Advisory firm affiliated with LPL Financial. He also spent seven years with JPMorgan Chase as a Senior Financial Advisor and was a Financial Representative with Northwestern Mutual Life.

Greg holds the Certified Private Wealth Advisor® designation and is a CERTIFIED FINANCIAL PLANNER™ Certificant. He also holds the Chartered Financial Consultant®, Chartered Life Underwriter®, Accredited Investment Fiduciary™, and Retirement Management AdvisorSM designations. He earned a B.S. in Finance from Miami University.

He and his wife Lindsey reside in Naperville, IL with their daughter and twin sons.

Michael D. Bellis, CFP®, CLU®

MANAGING PARTNER

Michael D. Bellis, CFP®, CLU® began his career as a financial planning professional in 1994. His practice is centered on holistic financial planning, astute risk management strategies and empirical, research-driven portfolio construction. He began his career in partnership with his father under the name Bellis & Associates. Together, their practice and reputation for excellence dates back more than 40 years and includes multiple generations of the same families. After his father’s retirement several years ago, Mike continued to build a client-centric, consultative practice before forming Vertex.

Mike holds the CERTIFIED FINANCIAL PLANNER™ certification and is also a Chartered Life Underwriter. He has been an active member of both the Society of Financial Services Professionals and the National Association of Insurance and Financial Advisors. He earned a B.S. in Business & Marketing from Illinois State University. Mike is a lifelong resident of Naperville, Illinois. He and his wife Tanja have three children.