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Tax Time is Estate Planning Check-up Time

In February, you’ll get tax forms – use them as an estate planning checklist for reviewing beneficiary designations.

By February 15, financial institutions will have sent you all the forms needed for your tax returns.  This nifty pile can help you review your beneficiary designations to make sure they are up-to-date. Beneficiary designations determine how retirement plans and life insurance proceeds will be distributed at death. Brokerage and bank accounts may also have beneficiary designations. Out of date designations may mean that assets go to the wrong people, and that’s just bad estate planning. You designated beneficiaries when you enrolled in your retirement plan. You may have filled out POD (payable on death) or TOD (transfer on death) forms when you opened investment or bank accounts.  Things to keep in mind in reviewing beneficiary designations are:

Your Designations May Be Wrong.  Life brings change, so it is wise to review your beneficiary designations and change them as needed.  Rules for retirement plans and remarriage are complex, and when the companies managing your assets merge, beneficiary designations may not transfer.  Review your designations when your marital status changes and when the institutions in charge of your assets change. Name contingent beneficiaries to receive assets in case primary beneficiaries do not survive.  Otherwise, these assets will need to be probated.

When providing for children or grandchildren, be thoughtful about the type of assets to leave them and the manner in which the assets will be distributed.  Do not name a minor as beneficiary.  Also, be cautious about naming a young adult as a beneficiary. Instead, create a trust for their benefit and name the trust as beneficiary.  Then, you can control when the child or grandchild can access funds. Contact a lawyer for wills and trust to discuss the right strategy for your children.

If a loved one has become disabled, you will want to change your designations to assure that you do not jeopardize that person’s eligibility for Social Security Supplemental Security Income (SSI). SSI provides income and Medicaid insurance to disabled people with less than $2,000 ($3,000 for a couple) in “countable resources.”  Inherited assets will be “countable resources” and jeopardize eligibility for benefits.  Instead, create a Special Needs Trust for the benefit of your disabled loved one and designate the trust as the beneficiary.

Your Designations Can Save Taxes. Retirement assets paid to an estate must be paid out within 5 years of death rather than over a named beneficiary’s lifetime. Name beneficiaries to save taxes! Life Insurance owned by a Life Insurance Trust can remove that asset from your taxable estate.  Finally, you can rollover or distribute your required minimum distribution to a charity and save income tax during life.

Your Estate Plan Needs Annual Exams.  Even if life has not handed you major change, review your beneficiary designations and make sure your loved ones know where to find important estate planning documents. Keep copies of your 1099 tax forms and use the contact information on the forms to call your financial institutions and check your designations.  Remember where you put your important documents and create a list for your family.

February, 2019

© 2019 Samuel, Sayward & Baler LLC