Don’t Leave It to Chance: Critical Estate Moves to Make Now
Category: Estate Planning
June 8, 2024 — A significant portion of older adults have not completed essential estate planning documents. In fact according to one survey, only about 55% of people over 55 have a will. Beyond creating an estate plan, there are a number of other tactics that you can take to protect your wishes and maximize the legacy of what you have created.
Since the estate tax exclusion is now $13.61 million, the federal tax on estates is not generally an issue. The amount not subject to tax has been raised to the point that it only applies to a tiny percentage of Americans. When the limitation was lower, estate planning was more complicated. However those days could be coming again, because if congress does not act, the exclusion could revert to $5 million in 2025.
Estate Moves to Make Now
Meanwhile there are many things that people can do to protect their estates, minimize taxes, and make things easier for their heirs and executors. We list some of them below, recognizing that many will not apply to those in the Topretirements community with uncomplicated and smaller resources. But most apply to everyone, no matter how small their estate might be.
Create or update your will. If you don’t have one, now is the time. If your estate is simple you can use an online service like Gentreo or Trust & Will. This is also when you should be updating your will to reflect beneficiaries and other items that have changed.
The Complete Idiot’s Guide to Wills and Estates might be useful as a starting point
Check your IRA and 401(k) beneficiaries. You might have remarried, someone might have died, or they changed their name. You might have changed your mind about who should benefit. One thing is for sure, the money will go to whomever is listed on the beneficiary document, even if it is your ex-husband.
Wait on your Social Security if you are the high earner. When you die your Social Security benefit goes to your spouse – if it is higher than what they are getting now. So it might be worth waiting until Full Retirement Age (67) or even 70 to make sure they get that extra money.
Change strategies for retirement funds for younger beneficiaries. The Secure Act changed many things, and one of them is the 10-year window for retirement distributions. Your younger beneficiaries could face significant tax payments, and there might be a more tax-efficient way to provide for them.
Move money to your grandchilden’s 529 Educational Funds. You can add $90,000 (5 years at once) to a 529 account and thus move that money out of your estate.
Take advantage of allowable gifts. You can make gifts up to the $18,000/yr limit per individual (a couple could give $36,000) without incurring the gift tax. Done over a period of years, that could keep your estate under the exclusion and give people money when they might need it more.
Make a plan for special needs children. If you have beneficiaries with special needs you must have a good plan that provides them financial and other stability when you are gone.
Convert taxable retirement funds to Roths. Your beneficiaries will not have to pay taxes on those distributions.
Designate beneficiaries for specific items with emotional value. Avoid possible family squabbles with a document that specifies who gets what.
Think twice about leaving property to multiple heirs. That beach house might be a family heirloom, but it could also be a battleground for who pays for what and when they get to use it. Think through how it will be disposed of to avoid problems.
Talk to your heirs about your plans. Many lawsuits over wills could have been avoided if people knew what was going to happen, and why. The process might also change your mind.
Have Advanced Care Directives, living wills, and powers of attorney signed and ready. You never know when you might be incapable of making a reasonable decision. Documents like these make it easier to reflect your wishes and avoid trouble.
Create a list of where all your assets are. Save your heirs extra work and missing something important.
Pay medical or educational expenses for others directly. This is another way to get money out of your estate without worrying about gift taxes.
Trusts can help qualify for Medicaid or public assistance. Medicaid kicks in for nursing homes, but only when your assets are depleted. There are ways to preserve some assets in that event.
Clean up your investment mess. Do you have multiple investment accounts, IRAs, stocks, and other types of investments? By consolidating them you will make life easier for your surviving spouse and executors.
Hire a professional trustee. It may be that you don’t have a relative or friend who either wants to be or is unqualified to be an executor. Hiring a professional like a bank trust department can avoid turmoil.
For further reading:
Kiplinger: 13 Smart Estate Planning Moves (very good)
Estate Planning Blog at Topretirements (many articles)
Can Incentives Help More People Write Wills (excellent summary of the top from Center for Retirement Research
Comments on "Don’t Leave It to Chance: Critical Estate Moves to Make Now"
Admin says:
This article from the Center for Retirement Research is an excellent summary of why a will is so important, along with some clever ideas on how to incentivize more people to get one.