Must-Know Changes for Your Estate Plan After the SECURE Act

Must-Know Changes for Your Estate Plan After the SECURE Act

 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in late 2019, creating significant retirement and tax reforms with the goal of making retirement savings accessible to more Americans. We wrote a blog article detailing the major changes from this piece of legislation.

We’re going to dive deeper into some of the questions we’ve been receiving from our clients to shed more light on topics raised by the new legislation. We have divided these questions into six major themes; charitable giving, estate planning, Roth conversions, taxes, stretching IRA distributions, and trusts as beneficiaries.  Here is our third of six installments on the SECURE Act and how it could impact you.

 

Given the new rules for inherited IRAs, who should be considering changes to their estate plan?

IRA owners will need to evaluate how changes in the SECURE Act impact estate planning and beneficiaries. If you have a small Traditional IRA and plan to leave your assets to several beneficiaries, the accelerated income your beneficiaries will receive from distributing their share of your IRA within 10 years of your passing may not significantly affect their taxes. However, if you have a very large IRA balance or plan to leave your assets to only one or two people, distributions could push your beneficiaries into higher tax brackets. It will be important to evaluate your tax situation and potential taxes to your heirs to determine if it makes sense to accelerate IRA distributions or conversions during your lifetime.

 

Here are some strategies you might consider:

Leave IRAs to multiple beneficiaries: Here, each person receives income from a smaller portion of the account, which reduces the likelihood of pushing them into a higher tax bracket.

Make Roth conversions: IRA owners can evaluate their personal tax situation compared to their beneficiaries. For example, if large inherited IRA distributions would likely push beneficiaries into higher tax brackets like the 32% marginal rate, an account owner might have an opportunity to convert some assets to a Roth IRA now at a lower rate. Current owners may be able to convert at a lower tax rate if they have a more favorable tax situation (e.g. earning less ordinary income) or can spread out conversions. Planning Roth conversions throughout retirement at lower rates can reduce the taxable portion of future inherited IRAs.

Evaluate Trust structures: Many people name a trust as the beneficiary of their IRA, and they need to evaluate their trust structure following the implementation of the SECURE Act to make sure the trust is properly drafted to account for new provisions in the law. Commonly used trust structures like conduit and accumulation trusts, or those with “see-through” provisions, are affected by changes in the new law. Existing conduit trusts could face issues with how RMDs are distributed to beneficiaries, and accumulation trusts may need to include flexibility for discretionary distributions to allow tax-efficient planning. We can help facilitate a review with your estate attorney or recommend one of our trusted professionals to evaluate your plan.

As with all new legislation, we will continue to track the changes as they unfold and notify you of any pertinent developments that may affect your financial plan. If you have further questions, please reach out to us.

 

First Installment: I’m Planning to Leave Assets to Charity – How Does the SECURE Act Change That?

Second Installment: How to Optimize Your Accounts After the SECURE Act

Fourth Installment: How to Circumvent the Demise of the Stretch: Strategies to Provide for Beneficiaries Beyond the 10-year Rule

Fifth Installment: The SECURE ACT: Important Estate Planning Considerations

Sixth Installment: Inheriting an IRA? New Rules to Consider

 

 

Disclosure: The material provided is current as of the date presented, and is for informational purposes only, and does not intend to address the financial objectives, situation, or specific needs of any individual investor. Any information is for illustrative purposes only, and is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances.  Investors should consult with a financial professional to discuss the appropriateness of the strategies discussed.

 

When Your Will Isn’t Enough

When Your Will Isn’t Enough

Estate planning is near the top of the list of things we know we need to do but often put off. We dread thinking about the end of our lives. Regardless of how unpleasant it is, the end could come at any time, without warning. Therefore, it’s important to have all basic estate planning documents in place, like a will, medical directive and durable power of attorney. These basics are necessary, but it’s extremely helpful to your loved ones if you take it a step further and give them specific instructions that aren’t contained in your legal documents. (more…)

Swedish Death Cleaning

Swedish Death Cleaning

As hard as it is to think about, the end of life will involve your loved ones cleaning out your home. At Merriman, we work with you and your estate planning team to get your financial affairs in order, both to ensure your wishes are met, but also for the ease of those people in your life who are most important to you. Margareta Magnusson recently published a book entitled The Gentle Art of Swedish Death Cleaning: How to Free Yourself and Your Family from a Lifetime of Clutter. Swedish death cleaning? While the sound of it may make you a little nervous, it’s a useful tool to cut down on possessions in a service to your loved ones and a fulfillment of that same goal.

(more…)

Not All Prepaid Funeral Arrangements Are the Same

Not All Prepaid Funeral Arrangements Are the Same

When someone passes away, their executor – usually their surviving spouse or child – must make funeral arrangements. This includes decisions around transporting the body, choosing a funeral home, arranging for a casket or cremation, and choosing a burial site. Importantly, they need to pay for each of these services along the way. This can be time consuming and stressful – all at a point when loved ones are already overwhelmed with grief.

Prepaid funerals, if purchased correctly, can help mitigate this burden. You pay up front, either in a lump sum or through a payment plan. Upon your passing, your family can contact the funeral company, who will take care of next steps.

Not all prepaid funeral arrangements are the same. Some options that seem to be good end up being bad decisions. Here are some questions to consider when evaluating prepaid funeral options. (more…)

The Importance of Having a Will

The Importance of Having a Will

As Wealth Advisors, we provide advice on all aspects of your financial situation, and work with a network of carefully selected professionals in taxes, estate planning and insurance to devise appropriate solutions that will help you achieve your goals. This article is a collaboration between Merriman Advisor Geoff Curran and Evan Monez, attorney at Montgomery Purdue Blankinship & Austin PLLC, who is one such member of our professional network team.


 

Though we try to stave off the inevitable as long as we can, it’s a fact of life that eventually, everyone dies. When this occurs, the deceased person’s family, while still grieving their loss, must deal with the transfer of the decedent’s assets. If you don’t have estate planning documents in place when your time comes, the laws of the state you live in determine how your estate is distributed. This is especially complex if you have children under age 18, children from previous marriages, property in different states or an estate large enough to be subject to federal or state estate taxes.

With some advance planning, you can ensure your assets pass as you intend, with as little trouble as possible for your loved ones. This article discusses Washington State law, and the rules discussed here may differ in other states. Please consult a licensed attorney in your state to understand how your state laws apply to the concepts in this article. (more…)

Why Can’t I Make Medical Decisions for My 18-Year-Old Child?

Your son has just turned age 18. The difference between ages 17 and 18 is that if your son has a medical emergency and is incapacitated, you can’t make a medical decision on his behalf or even speak to his doctors about his condition. Even if your son still lives with you and is a dependent, you don’t have the authority to call the shots since he’s now considered an adult. You’ll need to seek court approval to act or even be informed about your son’s medical condition.

To remedy this situation, children between the ages 18 to 25 can sign a medical power of attorney (POA) authorizing parents to act as their agent or proxy in medical decisions. This allows you to step in if they are disabled or incapacitated. This is even more important for kids leaving for college or taking a gap year to travel abroad.

Medical power of attorney documents can be created relatively inexpensively by estate planning attorneys. In most cases, an attorney can draft a medical POA à la carte, and you won’t have to revisit your entire estate plan. When drafting this document, it’s important to name an alternate medical POA in case you can’t be reached. This could be a relative in your son’s new college town or a close friend who is traveling abroad with him. What’s important is that someone with your son’s best interests at heart can act if your son were to become incapacitated.

If your child subsequently gets married, the medical POA should be updated. You don’t want a situation where the spouse has one desire but the parents, who have medical POA, have a different perspective.