An estate plan can help you pass on the assets you’ve worked so hard to accumulate in the most efficient way. With a proper estate plan in place, it can help minimize taxes so your family can receive more or your assets instead of Uncle Sam. And you’ll also have the comfort of knowing that your loved ones have a plan in place to help them understand how the finances work.
Estate plans are anything but a one-size-fits-all solution – how you tailor your approach depends on the individual(s).
How much can you pass on to loved ones tax-free, and how does passing on a retirement account work? Under the Tax Cuts and Jobs Act of 2017, the lifetime estate tax exemption limit for couples is $23.4 million, and each spouse can gift up to $15,000 per year tax-free to as many individuals as they wish.
Beneficiary designations on accounts like IRAs, 401(k)s and other company sponsored plans, and on life insurance are incredibly important when it comes to estate planning. You have a one-line beneficiary designation box that dictates who is going to get those funds upon your death. Making sure that your designations are up-to-date regularly can ensure the right person will receive the funds. Taking it a step further, you could consider putting in place a legal document* that allows you to be more specific with your accounts.
When it comes to distributions on those retirement accounts, spouses don’t have to drain inherited retirement accounts within 10 years, but most other beneficiaries do. The overwhelming majority of IRAs are cashed-in the first year after inheritance. That could be a potential for a huge tax payment for your beneficiaries upon inheritance. This doesn’t have to be the case if your beneficiaries are educated on their options and your estate is set-up for them to minimize their tax burden.
Estate planning can be complicated, but it doesn’t have to be if you have professional help on your side. An estate plan is an important part of your retirement plan, and should work with all other aspects of it, such as your tax minimization strategy and long-term care plan. No matter what your family situation is or what you want to do with your wealth after you pass on, we can help.
*Some IRA plans will allow you to put in place an “IRA Asset Will”. This is not a will in the traditional sense. It is a legal document that allows you to be more specific and thorough with your beneficiary designations.
