If you are someone who has worked many years and is approaching retirement, congratulations! It is quite a milestone to come to a point when you can retire after putting in years of hard work to provide for yourself and your family.
As you approach retirement, one thing that I highly encourage you to do is to put together an estate plan if you haven’t done so already. An effective estate plan eliminates the uncertainties that can arise in your later years and beyond.
Here are three smart estate planning considerations as you approach retirement.
1. Talk to a Financial Advisor about your IRA Distributions
While in the past, many people could defer payment of income taxes on large IRA assets for decades after their deaths with a life expectancy payout to their children or grandchildren, everything changed on December 20, 2019, when the SECURE Act was signed into law. Under the SECURE Act, most beneficiaries under the old law are no longer eligible for a life expectancy payout. Instead, a maximum ten-year post-death payout period is imposed on retirement benefits – essentially preventing deferral of unpaid income tax on IRA assets. You should consult an experienced financial advisor about the implications of the SECURE Act on your retirement assets.
2. Talk to your Family about Your Estate Plan
There are three fundamental questions that an effective estate plan must address:
- Who will inherit your property after your death?
- What is the best way to pass your property to those people?
- Who are the appropriate people to manage your affairs?
Whether you have an extensive estate plan in place or not, you need to talk to your family about these three questions.
By not talking about who will inherit your property after your death, even if you have made a Will, you risk an estate fight that can be lengthy and expensive. And if you do not have a Will, the Maryland Intestacy Laws do not guarantee that your property will be divided according to your wishes. Suppose there are personal items that you want a specific family member to have. In that case, you should mention that to that family member and have a Will or Trust drafted to the effect of that bequest.
By not discussing the best way to pass your property to your loved ones, you risk jeopardizing their interests instead of protecting them. A typical example is if you have any minor or disabled children or beneficiaries. In that case, you need to ensure that any property given to them is stewarded by a custodian or a person who can manage those funds in their best interest. Further, you must ensure that the property passed to them does not impact their entitlement to public benefits such as Supplemental Security Income (SSI) or Medicaid. An irrevocable or special needs trust is a mechanism to help preserve entitlement to these benefits. If you choose to create such a trust, you must discuss with your family who you believe to be trustworthy enough to manage the trust funds in their best interest.
You risk numerous potential future conflicts by avoiding the conversation about who you would like to manage your affairs. For one, if you don’t clarify who you want to serve as Personal Representative, any person interested in the proceeds of your estate can petition to become the Personal Representative of the estate – including a family member you may not prefer to be appointed. Moreover, even before your death, numerous uncertainties would be mitigated just by having a Power of Attorney or Health Care Agent in place. If you lose the capacity to make your financial and healthcare decisions, who would you want to make those decisions for you? It is essential to answer this question with your family to ensure they are on the same page as you about these matters (and to avoid any potential future litigation).
3. Talk to an Estate Planning Lawyer
While an estate plan that answers the questions above may be legally sufficient, it does not mean that it accomplishes exactly what you want. This is where having a consultation with an experienced estate planning lawyer is so important. A good estate planning consultation doesn’t merely answer the above questions; it also digs into who you are and your priorities.
For example, to answer the question about who will inherit your property after your death, we will need to know more about your family dynamics to better serve you – including the strength of your marriage, your relationship with your children, and the history or significance behind any property that you may own.
To answer the question about the best way to pass your property to your beneficiaries, we will likely talk about whether will and probate substitutes, such as a revocable living trust, an irrevocable trust, or other probate avoidance methods, are in your best interest. Each method has different advantages and disadvantages and will need to be discussed at length before being implemented. For example, privacy is one aspect of estate planning that many people don’t think about. Suppose you want the value of your estate not to be a matter of public record. In that case, you may want to create a revocable living trust to serve as a will substitute and to administer your affairs privately and without court intervention. Avoiding probate in this way can save your family thousands of dollars in filing fees and attorneys’ fees. In addition, a revocable living trust helps with the administration of estates where there is real property in more than one state, saving you and your family in probate costs incurred in multiple jurisdictions.
Moreover, there are tax liability questions that can arise in the event your estate exceeds the state or federal estate tax exemption limits. You want to think of ways to limit that tax liability before passing a tax bill to your family members.
Further, there are likely parts of your estate plan that you last addressed long ago that will provide substantial value to your beneficiaries. Are the beneficiary designations on your financial accounts, including bank accounts, brokerage accounts, retirement accounts, 401(k), and IRAs, up to date? If not, a simple update can ensure that thousands of dollars are appropriately distributed to those you want to have upon your death.
Finally, to answer the question about the appropriate people to manage your affairs, we will likely ask about who is most capable and honest to serve as your personal representative, trustee, or agent under a Power of Attorney or Health Care Advance Directive, and who would be a trustworthy alternate. And if you have young children, we may need to discuss who you would select as an appropriate guardian if you were to pass away.
We are here to help put you and your loved ones at ease – that is what an effective estate plan does. If you have any questions about your estate plan, please contact our office today for an estate planning consultation.
About Andalman & Flynn, P.C.: Founded in 1998 in downtown Silver Spring, Maryland, Andalman & Flynn has forged a distinguished reputation for legal excellence. The Firm practices family law, estate planning, and probate throughout Maryland and the District of Columbia, and represents individuals seeking disability benefits throughout the country. The Firm focuses on cases that impact the rights of everyone and is there for clients when responsive legal help is most critical. The Firm has provided legal analysis on national and local television and radio, and its attorneys often testify before legislative bodies and are routinely invited to contribute to prominent legal publications. For more information about Andalman & Flynn, please visit the website at andalmanflynn.com or call 301.563.6685.