Top Ten Ways to Simplify Your Estate Plan
Things change. Your circumstances and those of your family may have changed over the past several years. And estate tax laws have certainly changed. Our Planned Giving Council's Kimberly Coogan, Esq., offers the following suggestions to help you keep up with these changes and, most importantly, make things easier for your surviving spouse or family members. Here's her "Top Ten List" of opportunities to simplify your estate plan:
Quick and Easy
10. Update your Executor and Trustee appointments. Things do change. Avoid unnecessary cost and wasted time later by making sure these parties are you're the parties you'd choose today.
9. Review your Powers of Attorney. Perhaps your children are now old enough to be named to make financial and health care decisions for you if you become unable to act for yourself.
8. Confirm your IRA beneficiaries. If your children were younger the last time you signed IRA beneficiary designation forms, or if you named your trust as the beneficiary of your IRA, you may need to change the wording so your beneficiaries can take advantage of the inherited IRA rules with the fewest number of "hoops" to jump through to achieve the most income tax advantage.
7. Revisit your asset titling to ensure your assets pass as simply as possible to your beneficiaries. If you have a trust, make sure your after-tax accounts and real estate are titled in the trust. If you don't have a trust, you might consider ways to keep your estate out of probate. This will save time and money for your beneficiaries.
A Little More Detailed
6. Learn about the new estate tax laws, and how they affect your estate plan. If your estate is $4.0M or less, the tax formulas used in your old documents may result in unnecessary complication after your death. (Look at these changes over past 14 years: The federal estate tax exclusion amount was $675,000 in 2001; it is $5.34 million in 2014. Illinois passed its own estate tax in 2003; currently it applies to estates over $4.0 million.)
5. Would a TODI work for you? A "Transfer on Death Instrument" is a document that names a beneficiary to whom your primary residence will pass upon your death. This is a new Illinois law, providing an alternative for keeping your residence out of probate.
4. Consider using disclaimers to keep it simple. Providing for everything to pass to your surviving spouse unless he or she signs a "disclaimer" after your death, is one way to build flexibility into your estate plan and yet keep things simple for the surviving spouse. Your Will or trust agreement would provide that the disclaimed portion be held for the surviving spouse's benefit, but the disclaimed portion will not be subject to estate tax on the second death.
3. Does portability help in your situation? Portability, a provision of the 2010 federal tax act, allows the surviving spouse to file an election to retain any unused estate tax exclusion amount from the predeceased spouse's estate. Consult an attorney before relying on portability, since it does not apply to the Illinois estate tax, and presents certain other potential pitfalls.
2. Does generation-skipping transfer tax ("GST" tax) planning still make sense for you? If your old plan includes GST exemption planning, you may want to revisit it. The GST exclusion was much lower years ago, so avoiding estate tax in your children's estates may not be a priority now.
Easiest of All: Doing Good
1. Consider lifetime gifts to charity if your estate is potentially subject to estate tax. You'll make a difference for the charity of your choice and might be able to get the value of your estate below the estate tax exclusion amount. That means not only avoiding the tax, but saving your beneficiaries from having to file your estate tax return. If your age is over 70 ½ , you may roll your annual IRA required minimum distribution over to a charity, thereby avoiding paying any income tax on your IRA RMD.
These are just a few suggestions for ways in which the new estate tax laws, and other new developments in the law, afford you the opportunity to simplify your estate plan. Please contact your attorney for more detailed information as it applies to your personal situation.