Estate planning before death

Estate Planning and Medicaid

Estate plan and the new tax law

Estate plan and the new tax law

An estate plan is like a car or a house: It needs regular maintenance to function as intended. Yet unlike your car or home, external events can create the need for adjustments. Among such events is legislation like the tax bill Congress passed in late December.

So this is an important time to schedule a meeting with your estate planner and be certain your plan is up-to-date. Even if your estate plan won’t be affected by the new tax law, it’s smart to confer with your estate planner periodically to be certain your current wishes are reflected in your estate planning documents.

During this checkup, you may find that your plan no longer meets all of your needs because of changes in your life and the lives of your heirs. Or you may find that your plan didn’t cover your needs from the get-go. In my experience, many clients leave their estate planner’s office with a thick folder of documents and fail to read them carefully or discuss them in detail with their planner before signing.

When you meet with a professional for a thorough evaluation and possible updating, you might ask these key questions to assure your plan documents fully support your interests and those of your heirs.

1. Will the new federal law affect my estate tax picture?

Estate tax is the tax that estates pay governments upon death; when it applies, there’s less left for your heirs. The federal government exempts a certain amount of an estate’s value from this tax and Congress just doubled that amount, known as the exemption. The new law eliminated tax on estates for many wealthy families.

There will no longer be any federal tax on estates valued between $5.6 million and $11.2 million. Previously, the limit was $5.6 million. By exempting estates between $5.6 million and $11.2 million ($22.4 million for married couples), Congress gave substantial relief to all but the wealthiest families, since only about 5,000 estates a year are estimated to be above the new limit. So unless you’re rich (but not ultrarich), the doubling of the exemption shouldn’t affect your estate plan.

2. What does the new tax law mean by the exemption limit for married couples?

This can be confusing, since couples generally die one spouse at a time. The exemption limit for couples refers to portability — the ability of a spouse to avoid estate tax on amounts inherited from the other spouse that were within the exemption limits. The new law preserves portability, which was introduced in a revision of tax rules by Congress in 2012.

Related: The Trump tax calculator — will you pay more or less?

To assure that exemption limits from the estate of a deceased spouse are portable, estate planning documents of the surviving spouse must correctly invoke portability, using the right language. Otherwise, the estates of these spouses might be forced to create something known as a bypass trust — a costly, time-consuming route that can have the effect of reducing the amounts that heirs ultimately receive.

3. Will the new federal law affect my state estate tax?

There are 15 states that still have some form of estate tax: Minnesota, Iowa, Nebraska, Washington, Oregon, Kentucky, Tennessee, Pennsylvania, New Jersey, Massachusetts, Rhode Island, Connecticut, Delaware, Maryland and the District of Columbia.

Also read: The problems with doing your own estate planning

Some of these states yoke their exemption limits to the federal limits, so the federal increase will automatically trigger the same increase in those states. But some of these states have no such linkage, so their exemption limits will remain the same, assuming their legislatures don’t act to change them. (Some states have limits under $1 million.)

Detailed, state-by-state information on estate tax can be found on the Tax Foundation website.

4. Are my estate documents customized to fulfill my wishes and avoid unintended consequences?

Outcomes directly contrary to your intentions can result when documents aren’t specific enough because boilerplate, off-the-shelf documents were used without being customized to your situation. It’s not uncommon for this to happen with financial powers of attorney (POA), which direct how your finances are to be managed if you’re incapacitated and unable to make decisions.

Without specific provisions to assure your wishes are carried out, vague or overly general POAs — which don’t include specific provisions of wishes, limits and prohibitions — might allow the agent managing these finances (often, the person’s spouse) to:

  • Legally make gifts to whomever they wish and change beneficiaries on financial accounts — 401(k)s, IRAs, life insurance policies and annuities. In some cases, agent spouses have made gifts to themselves or their grown children from their first marriages or have designated these grown children as account beneficiaries without express permission.
  • Discontinue existing financial support for an aging parent or a disabled child
  • Manage the incapacitated individual’s assets in ways that person never would, such as taking risks that jeopardize the inheritance of heirs listed in the incapacitated person’s will

To prevent such negative outcomes, ask your estate planner to assure that your POA is specific enough.

Don’t miss: How to provide for your pet in your estate plan

5. How soon should I come in for another review of my estate plan?

Many experts advise doing a review every three years, and/or after major life changes, including: your divorce or the divorce of a grown child; the birth of a grandchild; your receipt of a significant inheritance; the sale of your business; your retirement; newly developed disabilities or chronic illnesses or a death in your family.

An estate plan should change with changing circumstances. By attending to this, you can show your loved ones that you cared about outcomes affecting them after you’re gone.

David Robinson is a Certified Financial Planner and founder/CEO of RTS Private Wealth Management in Phoenix.

This article is reprinted by permission from NextAvenue.org, © 2018 Twin Cities Public Television, Inc. All rights reserved.

2010 Tax Statistics in the USA

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More women between the ages of  55 under 60 yrs of age worked in 2010 compared to the number of men in the same age group.

In both men and women, the top earning age group is between the ages of 46 under 55 yrs of age. Disparity in income between men and women is almost double in favor of men.

738k men are still working past age 76 yrs of age and contributed to about $7M in taxes.

 

 

 

Indexed Annuity contributions are part of the distribution process in retirement

Index Annuities Gains

In 2008, the SP500 lost about 40% of its value.  Investors in indexed annuities did not lose a cent which took nearly 4 years for the SP500 to get back to 2007 levels.

For individuals who were retiring in 2008, or had tax qualified accounts in an Indexed annuity and passed away, that was a great deal.   Some use an indexed annuity as the “safe” portion of a portfolio as an asset class

Fees

Most indexed annuities have “$0” fees and $0 admin and maint. fees. An estimated 95% of indexed annuities have zero fees associated with their policies unless you add a specific rider for income or death benefit guarantees.  That commission is paid to the agent from the company, it doesn’t come out of the clients portfolio.

Many agents take their commission over a 5 year period, meaning that their commission is <1% annually, which is less than most brokerage account manager’s charge.

Surrender charges

State regulators limit the surrender charges. The highest surrender charge that I can find is 14% in year one (two financial companies), and that is only available in a few states.   Surrender charges in annuities function very similar to Bank CD surrender charges.  If you pull the investment before maturity, you will pay a penalty.   That is why it is called a “contract”.

There is built in liquidity that every policy has by state law.  Usually this amount is 10% annually, and some companies allow that 10% to aggregate (i.e.  if you don’t pull funds for 5 years, you can pull up to 50% of the contract in one withdraw without penalty).

 Taxes

Taxes are the same as any 401k, IRA, or qualified plan (the same thing that the author recommends in the final section).   Suitability practices over the past five to ten years or so have increased substantially to prevent mis-representation by agents or the companies.

 Personalized client investment goals

Not every client is trying to maximize return, some simply want the guarantee that they won’t lose any of their principal, their taxes are deferred, and don’t mind if it’s in a 5- 10 year contract with minimum guarantees.   There are very few annuities that have flexible premiums and allow annual contributions, most are single premium rollovers.   Putting money into an indexed annuity or an ongoing contribution strategies are part of the “Accumulation” process leading to retirement.

Email Connie at motherhealth@gmail.com or conniedbuono@gmail.com to have a chat with a sr investment advisor to help you reduce your income taxes and protect your cash flow. 408-854-1883

Financial structure and strategy for doctors and business owners only

for doctors only

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Contact Connie Dello Buono 408-854-1883 motherhealth@gmail.com if you are a doctor or business owner and wanted to save at least 20% in income taxes, protect your assets and cash flow and ensure your lifetime retirement savings are earning with guaranteed return, tax advantages and less risks. We work with your CPA, real estate advisors and other advisors to form a team to support your financial goals (short term and long term).

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