Planning for the Inevitable… and also the Unexpected: Effective Estate and Tax Planning in Changing Times

by Judith Harris

Basic principles of responsible estate and tax planning deserve your careful attention.   Optimal planning for the desired distribution of your assets to your beneficiaries and the administration of your taxes, debts, and expenses after your death should include a Will–or a Will in conjunction with a Revocable Trust– and the appropriate attention to the titling of assets and designation of beneficiaries.   In addition, advances in medical science and the reality of longer life spans in the U.S.—and the increased possibility of some period of incapacity during one’s life—highlight your need for a state-of-the-art Financial Power of Attorney and a Medical Power of Attorney and Advance Directive. 

But that important wisdom is old news.  

Many changes affecting our work and lives have occurred during the past 3 years.  Changes brought on by Covid.  By Congress’ SECURE Act of 2020 and it’s crucial, still-pending Proposed Treasury Regulations.  By modified practices of certain banks and other financial institutions.  By a scheduled, upcoming increase in Estate and Gift tax liability.  These are only a few.

What should you do to make your Estate Plan and your documents most effective, given these changes?   Here are 6 actions you should take immediately:

  • Accept the possibility of your incapacity and plan for it.  

Planning for the distribution of your assets upon your death are critical.    But too little attention is often given to planning for your incapacity.    You should give careful thought to what plan should take effect—and who should manage that plan—in the event of your incapacity.  A sophisticated Financial and Medical Power of Attorney/Advance Directive (Living Will) with carefully chosen Agents, Surrogates, and alternates are necessary.

  • Maintain an updated list of your assets and liabilities.

Planning for your estate depends on the kinds of assets and liabilities you (and, if you are married, you and/or your spouse) own, their values, and how those assets and liabilities are structured.   Careful income tax and death tax planning depend on this complete and current information, as well.  

  • Build strategic provisions in your Power of Attorney, Will, and any Revocable and Irrevocable Trusts.

None of us can predict the future.  Because you cannot amend or modify any of these documents after you become incapacitated or after you die, it is not unusual for a document to become outdated, over time, as to your wishes, applicable Federal and state laws, or the powers that you need your Agent, Executor and/or Trustee to have to carry out your wishes.   An experienced and resourceful estate planning and tax attorney will write your documents in such a way (using, for example, Trust Protector appointments and other useful tools) to promote maximum flexibility for even irrevocable documents.

  • Understand Federal and relevant state tax laws as they apply to your IRAs and Qualified Retirement Plans.  Maintain up-to-date Beneficiary Designations. 

Any tax professional well-versed in Federal tax law knows that the law applicable to retirement plans and distributions was complex long before the SECURE Act was passed in 2019.  The SECURE Act substantially increased the retirement plan distribution laws.   The SECURE Act contains several areas of ambiguity.   Proposed Treasury Regulations were issued in February 2022 to clarify these areas, but those Regulations are not yet final.   It is imperative that you and your estate planning attorney understand your options and requirements under current Federal tax law with regard to your IRA’s and any Qualified Retirement Plans in which you are a participant.   This is particularly important if your estate plan uses a trust or trusts to direct those retirement plans at your death.

  • Understand how upcoming changes in Federal and state income tax and death tax laws will affect you and your family. 

A significant reduction in the applicable exemption to the Federal Estate and Gift tax is scheduled for the end of 2025, barring any intervening changes by Congress.  And momentous changes in IRS operations and initiatives appear to be forthcoming.  

  • Provide for jurisdictional changes in your documents.

Many estate planners are seeing increased mobility and residency changes among both younger and mature clients.   This trend requires greater legal and tax planning scrutiny in crafting an effective estate plan with optimal tax-saving strategies.

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