Eight Key Estate-Planning Tips You Can Take to the Bank

January 9, 2020

By: Joy Matak, JD, LLM, Principal and Trusts and Estates National Practice Co-Leader, CohnReznick

As 2019 has now ended, it’s time to get your finances and your estate in shape. The federal exemption from estate taxes has never been higher, and income taxes are relatively low. Before the holidays arrive to eat up your time and money, here are eight estate-planning tips you can take to the bank, or your financial advisor:  

1. Reduce your taxes and protect your wealth 

The federal estate tax exemption as of Jan. 1, 2019, is $11.4 million, increasing to $11,580,000 as of Jan. 1, 2020. This exemption is scheduled to be reduced by half in 2026. If the so-called “blue wave” of 2018 continues through the 2020 elections, the federal estate tax exemption could be changed much earlier than current law requires. Responsible planning may be structured to reduce your taxable estate, save income taxes, and protect your assets from creditors – in a way that permits you to continue to have access to your assets.

2. Update your plan 

If you have a trust that’s even five years old, you may need a more up-to-date trust drafted to be more powerful, robust, tailored, and flexible. Flexibility is key, because the world keeps changing, as do the stock market and tax laws. Trusts that were set up more than a few years ago are unlikely to provide the robust terms that up-to-date trusts provide, such as a modification provision, having trust protectors who can monitor trustees, and make midcourse changes, and more.  

3. State income tax issues 

Now that federal tax reform has reduced state and local tax deductions, it may be time to consider moving that trust from a high-tax jurisdiction to a state that has reduced or eliminated state income taxes for trusts. States such as Nevada, South Dakota, and Alaska have enhanced the benefits of moving there by increasing asset protection.  

4. Strategic charitable giving 

You may be able to achieve an estate tax benefit and possibly reduce income taxes through charitable trusts. Tax reform improved these opportunities by allowing more of your charitable dollars to be deductible in the year of giving.   

5. SECURE Act 

Republicans and Democrats may come together – to limit your opportunities to leave your IRA to your grandchildren in a tax-deferral strategy that allows them to stretch the required minimum distributions over their lifetimes. The Setting Every Community Up for Retirement Enhancement (SECURE) Act has been making its way through Congress with bipartisan support and is expected to be signed into law when it finally makes its way to the president’s desk. 

6. Prenuptial agreements/divorce 

Prenuptial agreements should be drafted to conform with any planning that has been done, whether by the future spouses or by third parties for their benefit. It is important to involve an estate-planning professional in the process of negotiating a prenuptial agreement so that separate property is kept from being commingled with marital property. Under recent revisions to the Internal Revenue Code and related regulations, a surviving spouse may be able to use a deceased spouse’s unused lifetime exclusion to make gifts (a “portability election”). This opportunity is only available if a federal estate tax return for the deceased spouse is filed. The surviving spouse is the only person who can make the portability election and the only person with an interest in the value of portability. Therefore, a prenuptial agreement should specify whether the surviving spouse has the right to require that a federal estate tax return be filed for a deceased spouse solely for the purposes of preserving portability. The prenuptial agreement should also clarify who will pay for the preparation of the federal estate tax return. 

7. Insurance 

It is important to review insurance policies regularly to ensure that your family and closely held businesses will have sufficient liquidity and resources available in the event of an untimely death or disability. Several insurance companies have recently created combined life and long-term care policies that can cover the costs associated with a disability. 

8. Convert to a Roth IRA 

Tax reform lowered federal income tax rates for many taxpayers who may be able to take advantage of converting a regular IRA to a Roth IRA. If structured thoughtfully, you may be able to use charitable contribution deductions or harvest losses to offset some of the gain that would result from the conversion.

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