Is your estate due (or overdue) for its 36-month checkup?

Although many don't think about it, you likely have an estate you will leave behind. Planning ahead could save you and your family lots of money and heartache.

Federal workers probably appreciate the value of a fair tax system as well as any group in the country. Maybe better than most. Maybe because they are on both the giving and receiving end of taxation. And they actually see the sausage being made and know how good (or not) the end product is.

Most working or retired adults probably feel everyone should pay their fair share. Starting with themselves. But don’t overpay. Especially out of ignorance or indifference. That’s an expensive shoulder shrug. Why? Because tax rules change all the time. And most of us can’t keep up. As a result, you or your estate may pay way too much to the state or federal government. Many don’t worry about the status of their “estate” because they feel they don’t have one. But if you’ve been working for a while, especially for Uncle Sam, odds are you may own property. And have a bank account. And money in the TSP. If you check off any of those boxes, you have an estate. And there is a good chance you are worth more dead than alive. Sad, maybe, but true. So what can you do about it?

Most people who have been through a death in the family know that being prepared and doing the best for your loved ones and friends is more than a will you downloaded or instructions that your favorite nephew gets your car (and any remaining payments).

A growing number of people are setting things up as if they have an estate. And that means keeping up with tax law at the federal and state level. Maybe changing your residence. So we called on estate attorney Thomas O’Rourke to join us on today’s Your Turn show. Among other things, he’s going to talk about getting to know what you don’t know. The show is live at 10 am ET streaming here or on the radio at 1500 AM in the D.C metro area. It will also be archived on our home page so you can hear it anytime. I asked a former attorney with the IRS to run down what he’s going to cover. And if you have any questions for him,  send them to before showtime. One of the most asked questions, he said, is how often individuals should revise their estate plan. This is what he said, plus a preview of what we’ll cover on today’s show:

My typical response to the how-often an estate plan needs a checkout and review, and maybe a modification is when your circumstances change, or when the law changes. Only you know if your circumstances change. Common examples of a change in circumstances that require modification of an estate plan are a birth, death, marriage, divorce, and change in relationship with a person mentioned in your plan, or a change in your financial situation. Your advisers (lawyer or financial planner) should advise you of any changes in the law that impact your estate plan.

In recent years, there have been a number of changes in the law that make it prudent to review your estate plan. The passage of the Secure Act in 2019 made two changes that could impact your strategies. Specifically, it increased the age at which an individual must begin to withdraw money from tax deferred accounts from age 70 ½ to age 72. Second, it eliminated the ability to use a stretch IRA. A stretch IRA allowed the beneficiary of a tax deferred plan to spread payments from a tax deferred account over his/her life.

There are also ongoing discussions about making major changes in the estate tax laws. A bill to reduce the estate tax exemption from its current level of $11.7 million to $3.5 million has been introduced. While this is still a very expectancy. The Secure Act limited the deferral period to 10 years for many beneficiaries. You may wish to consider the impact of this change on the persons you name as beneficiary of any tax deferred funds you may have.

Large exemption, some folks who have government pensions, TSP accounts, life insurance, and homes may approach or exceed this level. In addition, there have been discussions about limiting or eliminating other estate tax benefits. At this time, there have merely been general discussions and no concrete proposal. It is advisable to stay tuned so you can determine what, if any, changes you wish to make to your estate plan.

Some of the strategies that you may wish to consider are as follows:

  • Rethinking your IRA strategy. Is it prudent to convert to a Roth IRA?
  • Take advantage of the $15,000 per person gift tax exclusion.
  • Take advantage of the ability to pay education or medical expenses of a loved one. This not only avoids gift tax, but also reduces estate tax exposure.
  • Using a section 529 plan account to help a child or grandchild and also avoid taxes.
  • Consider establishing a trust to provide for the care of a spouse while reducing tax exposure and controlling the ultimate distribution of your assets.
  • Protect Assets from the claims of any creditors of a beneficiary.

At present perhaps the best advice is to pay attention to estate tax changes that Congress may implement and discuss these matters with your advisers. If you do so, your estate plan can be modified to meet you goals in a tax efficient manner.

Listen in. It could save you and your family lots of money and heartache!

Nearly Useless Factoid

By Alazar Moges

The first lighthouse built in the United States was stood up in 1716. Boston Lighthouse was built on Little Brewster Island. and despite having been destroyed during the Revolutionary War it was later rebuilt in 1783 and still stands till this day.

Source: Lighthouse Digest Magazine

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