Smart Estate Planning In 13 Steps

People never understand how expensive it is not to do any estate planning, explains an article from Kiplinger, “13 Smart Estate Planning Moves.” Consider these steps for your estate planning checklist:

1. The SECURE Act changed distribution rules for non-spouse beneficiaries. The ten-year rule requires most beneficiaries to empty the account within ten years of the original owner’s death. It may be time to rethink how your IRA is invested.

2. Consider a Roth IRA conversion. This allows heirs to receive distributions tax-free. Consider converting annual distributions instead of moving an entire IRA into a Roth.

3. Use the annual gift tax exclusion, which is $18,000 in 2024. You can give as many people as you want up to $18,000 without incurring gift taxes. A related choice: superfund a 529 college savings plan, putting five years of gifting into one year—up to $90,000 all at once. Check with your estate planning attorney to see how this could impact your estate plan.

4. Use up your lifetime gift exemption early. This is especially useful if you believe the gift and estate tax limits will be lowered when the Tax Cuts and Jobs Act expires.

5. Pay medical or tuition costs directly to the school or healthcare provider as long as checks are written directly to the institution. Paying medical bills or tuition doesn’t count towards the annual exclusion or estate tax exemption.

6. Talk with your estate planning attorney about a Spousal Lifetime Access Trust. This is an irrevocable trust for a spouse, with each spouse opening one for another. The trusts must be different to avoid drawing the IRS's attention.

7. Find out whether carrying forward any remaining estate tax exemptions unused by a deceased spouse is right for you. If you have appreciated assets, a bypass trust might be better.

8. Protect yourself and your estate from creditors and litigation with a domestic asset trust. This irrevocable, self-settled trust is available in twenty states. The person funding the trust can be the grantor.

9. Explore the use of revocable trusts. Some may not help with avoiding probate or trimming taxes but may work well for managing assets as you age or if you have health problems and expect someone to help manage your finances.

10. Make a plan for Medicaid and Special Needs family members. The massive cost of nursing home care makes this a necessity. Discuss the creation of a Medicaid Asset Protection Trust with your estate planning attorney.

11. Simplify your investment life. If you have investments in multiple accounts and different bank accounts, your executor will have more work to do.

12. Consider whether or not your estate should be managed by a professional, especially if you have a particularly argumentative or litigious family.

13. Finally, don’t delay having your estate plan created or updated. We all think we have plenty of time until we don’t. Meet with an estate planning attorney to update or create a new plan.

Reference: Kiplinger (May 9, 2024) “13 Smart Estate Planning Moves”