trusts – Baker Asset Management, LLC

Updating Your Estate Plan: Why Naming a Trust as Your IRA Beneficiary Needs a Checkup

If you created a trust years ago to pass your IRA to children or grandchildren, the ground beneath your estate plan has fundamentally shifted.

Under older tax law, naming a trust as your IRA beneficiary allowed your heirs to “stretch” distributions—and the tax burden—gradually over their lifetimes. Today, under the post-SECURE Act framework, those rules have been replaced with strict deadlines that could trigger unexpected tax bills if left unchecked.

The Problem: Compressed Trust Tax Brackets

Many older trusts were drafted as “accumulation trusts,” which allow the trustee to hold IRA distributions inside the trust for asset protection. While protection remains valuable, the tax cost has skyrocketed:

Individual Tax Brackets: An individual doesn’t reach the top 37% federal marginal tax bracket until their income exceeds $600,000 (or over $750,000 for married couples filing jointly).
Trust Tax Brackets: A trust hits the top 37% tax bracket at just over $16,000 of retained income.

If your inherited traditional IRA pushes hundreds of thousands of dollars into a trust over a short period, the IRS takes a significantly larger bite than if the funds were distributed directly or managed through an updated structure.

The 10-Year Rule Factor

Most non-spouse beneficiaries must now fully deplete an inherited IRA by December 31 of the 10^th year following the owner’s death. Furthermore, if you pass away after reaching your Required Beginning Date (RBD), your beneficiaries are required to take annual distributions in years 1 through 9 before liquidating the balance in year 10.

Without proactive coordination, forcing large distributions into an outdated trust structure can needlessly drain family wealth.

Strategic Solutions to Consider

Review Conduit vs. Accumulation Language: Ensure trust provisions match current legal definitions for “see-through” status while balancing creditor protection against tax drag.
Lifetime Roth Conversions: Converting traditional IRA assets to a Roth IRA during your lifetime allows the account to pass tax-free to heirs. Inherited Roth IRAs are still subject to the 10-year rule, but distributions come out completely tax-free.
Re-evaluate Direct Beneficiary Designations: For mature heirs who do not require legal protection, direct designations may be far more tax efficient.

If you haven’t reviewed your estate plan and beneficiary designations recently, now is the time to align them with current tax law and your overall financial goals.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

How to Pay NO TAXES on your Long-Term Capital Gains

How to Avoid Capital Gains Tax in Mutual Funds

With positive returns in the stock market over the last three years, investors are most likely sitting on some unrealized capital gains in their taxable brokerage accounts. Read on if you are thinking about locking in some of those gains and how to minimize federal taxes on them.

First, let’s get some definitions out of the way.

A capital gain is the profit realized from the sale of a capital asset, such as stocks or bonds, for a price greater than what you paid for it, aka its cost basis.

For example, if a stock was purchased for $100 plus a $5 fee and was later sold for $150 with a $5 fee, the cost basis would be $105, and the net proceeds would be $145, resulting in a realized capital gain of $40.

For this gain to be considered long-term, you would need to have held the asset for more than one year. For example, if an asset is purchased on March 20, 2024, a sale on March 20, 2025, would be a short-term transaction, while a sale one day later on March 21, 2025, would be a long-term transaction.

Now, here’s the important part. These gains are subject to special, significantly lower tax rates of 0%, 15%, or 20%. These are typically lower than your ordinary income tax rate, which could be as high as 37%.

The following table details the specific income limits for 2025 to qualify for the various long-term capital gains (LTCG) tax rates.

Tax Filing Status	0% Rate Taxable Income	15% Rate Taxable Income	20% Rate Taxable Income
Single	Up to $48,350	$48,351 to $533,400	Over $533,400
Married Filing Jointly	Up to $96,700	$96,701 to $600,050	Over $600,050
Head of Household	Up to $64,750	$64,751 to $566,700	Over $566,700
Married Filing Separately	Up to $48,350	$48,351 to $300,000	Over $300,000

So, to be able to avoid LTCG tax in 2025, you will need to have taxable income of less than $48,300 for single filers and less than $96,700 if you’re married. It’s important to note that we are looking at taxable income, which is typically found at the bottom of your 1040 form (Line 15 on the 2024 Form 1040). Taxable income is calculated as adjusted gross income (AGI) minus standard or itemized deductions. This means an individual can strategically reduce their taxable income to fit within the 0% bracket.

For example, a single filer with a gross income of $65,000 using the standard deduction of $15,750 for 2025 and a 401k contribution of $10,900 could get their taxable income to $38,350, $10,000 below the $48,350 threshold. Therefore, a realized LTCG of $10,000 can be added to the taxable income, which would be taxed at 0% since the total taxable income is below the $48,350 threshold.

The decision to sell some winners and realize LTCGs in 2025 is not an isolated one; it must be coordinated with all other income, deduction, and contribution decisions for the year. Obviously, this strategy works best for those that already have a low taxable income, such as retirees.

Before taking any action, it is recommended to consult with a qualified tax professional, financial advisor, or attorney who can provide personalized guidance.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

The Pros and Cons of Living Trusts

This is always a great time of the year to review your financial picture.

One of the items that you might be considering, or have considered before, is whether or not to establish a revocable living trust to hold your assets.

A revocable living trust is a legal document created by you (the grantor) while you are alive and of sound mind and body. Just like a will, a living trust spells out exactly what your desires are with regard to your assets, your dependents, and your heirs. But a won’t go into effect until after you die, whereas a living trust is already in effect.

There is little difference to owning your assets in your name or in your living trust’s name while you are alive and well. The benefits occur after you die or if you become incapable of handling your own affairs.

Here is a list of some of the benefits of having a living trust:

Avoids probate – This is probably the biggest reason people have a living trust. The trust bypasses the costly and time-consuming process of probate, which is conducted by the state courts of your residence when you die and has the authority to decide how to divvy up your assets.
Provides privacy – a living trust is not made public, so upon your death, your estate will be distributed in private. A will, on the other hand, is public record and so all transactions will be public as well.
Maintains control – If you become incapacitated in a way that you can no longer manage your assets, your handpicked successor trustee can manage your affairs without court intervention, and since the trust is revocable, if you dispute your incapacity, you can retain control yourself.

There are disadvantages as well:

Cost – A living trust can cost anywhere between $500 – $4,000, depending on the complexity. This is the price that you pay for the money saved by avoiding probate, which can typically run around 4% of your total estate value.
Bookkeeping – In order for your living trust to be of use, you have to transfer your assets into it. That means opening new accounts with the trust as owner for your bank and investment accounts. Also, transferring deeds and title for property into the trust name, which can be time consuming.

In summary, if you have a large family and/or a large number of assets, you may want to consider establishing a revocable living trust. It could save you and your family not just a lot of money, but also a ton of undue stress and strain on you and your family during difficult times.

If you have questions or want to know if you should establish a living trust, just shoot me an email.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

FDIC and Trusts: What You Need To Know

A new rule regarding FDIC insurance for trust accounts became effective on April 1, 2024, that could impact anyone with a trust account held at an FDIC-member bank. The new rule simplifies insurance coverage for trust accounts by:

Reducing the number of insurance rules for trust accounts
Eliminating complexities from the revocable and irrevocable trust rules
Utilizing the same familiar, straightforward insurance calculation for both revocable and irrevocable trusts

The new rule provides insurance of a trust account(s) of $250,000 per beneficiary, for up to five beneficiaries, for a total of $1,250,000.

This is per each trust owner for each bank. However, many trusts have multiple owners. So, for example, if you own a trust with your spouse (two owners) and the trust has four beneficiaries, FDIC insures up to $2,000,000 (2 owners x 4 beneficiaries x $250,000).

It’s important to note that $1,250,000 remains the maximum insurance, per bank, for a single owner, regardless of how many trusts and/or beneficiaries that they have at that particular bank. That means if a person has, say, a revocable living trust and an irrevocable charitable trust, those trusts are combined to determine how much the owner is insured for those combined assets.

Although this new rule was enacted to simplify the FDIC insurance rules regarding trust accounts, it still has its complexities. I would definitely recommend working with your financial advisers to maximize coverage for your financial assets.

Please comment or send an email if you have any questions. Thanks!

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassemanagement.com