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Estate Planning

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New Required Minimum Distribution Rules

A few years ago, the Required Minimum Distribution (RMD) rule changed from requiring distributions at the age of 70-1/2 to 72 years.  Life expectancies are increasing (sans Covid) and the Consolidated Appropriations Act of 2023 has extended the starting age for RMDs to the age of 73 for those who turn 72 after December 31, 2022.  If you turn 72 in 2023, you can now delay the withdrawal until the tax year for 2024.

Looking to the future, if someone turns 74 in years 2033 or later, the beginning withdrawal age goes to 75 years. 

But, do not despair and think that you must wait to withdraw from your retirement assets.  Once you reach 59-1/2 years, there is no penalty/surcharge for early withdrawal and these assets are available to you. 

Remember that prior laws have changed the time one has to withdraw from retirement-type assets they receive as a beneficiary to a maximum of ten (10) years, with a few exceptions.  These withdrawal requirements are separate from a retirement asset you own and have access to during your lifetime. 

It is likely that any withdrawals, whether from your own retirement assets or from retirement assets you inherited, will be subject to income tax (except for Roth IRAs) and you will need to provide for the additional income being reported on your income tax returns so that you will not be subject to underpayment penalties and/or interest, which can add up quickly. 

If you need assistance with the decision of when and how to receive your RMDs, speak with your financial advisor or the plan administrator/financial institution.  Don’t think that the distributions will automatically begin when you reach the “magic” age, for there will always be paperwork to be completed!

Your Spouse Has Passed – Now What?

Your spouse has passed – what do you need to do? 

Many times, there may be very little for you, as the surviving spouse, to do after the funeral.  However, everyone is different and what your relative or neighbor may have experienced is not what is true for your situation. 

The list below is but only a few thoughts for you to consider, but remember it is not exclusive and should not be relied upon for being legal advice – only for you to consider.  The best advice is to contact your attorney for definitive actions to be taken. 

  • If you and your spouse owned assets jointly, most likely they were owned as tenants by the entireties – upon the death of one, the surviving spouse owns the entire asset.  What action might be necessary to remove the deceased spouse’s name from the asset? 
  • However, there are other forms of ownership – tenants in common – in which each spouse owned one-half of the asset and upon a spouse’s death, their one-half interest is considered a probate asset and does not necessarily pass to the surviving spouse. 
  • If the deceased spouse owned assets jointly with someone other than the surviving spouse, be aware that the asset most likely passes by operation of law to the surviving owner.  Determination must be made to determine ownership.
  • What assets were owned by your spouse either individually, jointly or with a beneficiary designation?  Some or all of the assets could be subject to estate tax – inheritance or estate tax.
  • Does the deceased spouse’s Will need to be probated?  The best answer comes only after speaking with an attorney.
  • Social Security was most likely notified by the funeral director of the death but the surviving spouse needs to follow up with the SSA for determination of future benefits. 
  • Was the deceased spouse receiving benefits from a retirement-type plan or a former employer? 
  • Do you need to address medical insurance coverage?
  • Is it necessary to prepare and file a state inheritance tax return? 
  • Is it advisable or necessary to prepare and file a federal estate tax return – especially to preserve the unused spousal federal estate tax exemption?
  • What is the impact on your individual income tax returns?
  • Does the surviving spouse need to update their estate planning documents?

Frequently upon the death of a spouse, the surviving spouse will visit a financial institution to notify them of the death.  As the surviving spouse, you want to make certain that someone can help you in the event of your inability to handle your own affairs.  When visiting the financial institution, it may be recommended that you add your child on the account.  BEWARE:  If you add your child as a joint owner, your assets could become subject to your child’s creditors.  Is this your intention?  OR, is it your intention to only grant permission for your child to have signatory permission on the account – but not be an owner?  Has the financial institution recommended that you put a beneficiary designation on the asset(s)?

There is no one answer that fits all circumstances.  Before you do anything with the financial institution, make certain that your wishes are being carried out.  Often times financial institutions advise surviving spouses to put a child’s name on their account.  And, what happens is that the child is made a joint owner and only discovered after the fact.  And, sometimes when it is too late to protect the asset.

Your best bet is to contact an attorney for consulting on what the best direction is for your situation. 

New Year – New To Do List

As we move through the new year, we may have made resolutions, created a To Do list, or just have mentally thought about different things that might need attention.  Regardless of your method, one very important item that you should give priority to is to address your estate planning and to determine if it needs to be updated.  Or in some cases be prepared, as you don’t have any documents in place.

You may think that even if you have done your estate planning in the past that you needn’t think further about it, you are so wrong.  Situations change in your life as well as in the lives of your beneficiaries.  Illness, creditor issues, marital situations, disability, death – just to name a few.   Tax laws change. Any one of these can have an impact on your estate planning. 

            Here are some thought-provoking questions for you to ponder:

  • If your spouse has died since you prepared your estate planning, have you reviewed your documents to make certain that you are covered with fiduciary – executor, power of attorney and living will/health care directive agents – appointments? 
  • Are any of your beneficiaries experiencing creditor issues that you may want to protect any potential inheritance?
  • Are any of your beneficiaries having marital difficulties?  Even if they are in solid marriages, do you have specific feelings as to whether you would want the beneficiary’s spouse to benefit or would you prefer to ensure that the next generation benefit.  For example, if you name your children as your beneficiaries but a child predeceases you, do you wish for your grandchildren to benefit or do you wish for your child-in-law to benefit?
  • If any of your beneficiaries have stepchildren, do you wish for them to be considered a child?  How about adopted children? 
  • If a potential beneficiary is disabled and receiving governmental benefits, special consideration should be given in your estate plan to ensure that the disabled beneficiary would not lose any governmental benefits they may be receiving.
  • If your distributions are to be made to beneficiaries for whom inheritance tax may be assessed, who do you want to pay those inheritance taxes?  Laws differ greatly by state.
  • What is the impact between probate assets and non-probate assets (beneficiary designated assets/jointly owned assets) and your desired distribution?
  • Depending on the size of your estate, might it be beneficial for you to engage in gifting of assets?
  • If you are charitably inclined, based on the makeup of your wealth, are there options regarding charitable donations that could reduce your income taxes while you are living?
  • If you have a child living with you who is providing care services, what are your thoughts about the child receiving compensation of some sort for their services?  Do you need to have a care agreement in place? 

More than anything, I caution you against using free forms found on the internet for estate planning purposes.  Often times there may be discrepancies that you would not know about.  A couple of examples are:  Are they specific to your state of residence?  Do they provide guidance on the necessary signature requirements and witness and notarial requirements?  Have they addressed tax payments?  Do they give you guidance on any specific situations for you or your estate (as mentioned above)?

Even if you think that your estate planning is simple, there is usually one little detail that can necessitate special attention that could have an impact. 

Why not put your estate planning review (or preparation) on the same timing as preparing your income taxes?  Why not get the burden of both off of your shoulders at the same time?

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