Estate Planning Primer Part 3: Goals & Strategy

If it’s time for you to retire or you’ve begun considering that life change, it’s very important that you develop a strategy that will meet your estate planning goals and outline how your legacy assets will be managed for your heirs. For financial planning purposes, your estate assets may need a very specialized structure.

To begin, tax experts suggest you first consider to whom you’d like to leave the majority of your wealth. Is it intended for your children, other family, friends, or perhaps your favorite charities?

Once those decisions have been made, you, in partnership with your financial and tax advisors, can begin constructing a secure retirement plan that will both achieve your goals and ensure that your beneficiaries receive the assets you wish them to. Additionally, you will want to structure your estate plan in such a way that your goals are flexible and can be adjusted as beneficiaries, circumstances and tax regulations change.

As you continue planning, you’ll need to review your income streams, including your investments, pensions, annuities and anticipated Social Security benefits. These may be supplemented by distributions from taxable investments, required minimum distributions from tax-deferred traditional IRAs and other qualified plans beginning at age 72 (for those who turned 70 ½ in 2020 and thereafter).

Traditional thinking often says retirees should protect their qualified accounts and use taxable accounts to take advantage of lower capital gains. However, although deferring those taxes can be well-advised while you’re alive, it has the potential to negatively impact your beneficiaries who may face big tax bills after you pass.

Consider instead, once you find your traditional IRA or qualified plan assets aren’t needed to meet your retirement goals, and your intention is to leave the funds to your heirs, it might be a good idea to convert part of those retirement accounts to a Roth IRA. By paying income taxes now you allow your assets to grow tax-free instead of tax-deferred.  Make sure, however, that you designate beneficiaries of your IRAs so your heirs are not subject to estate taxes.

Now, if your plan is to give your assets to a charitable foundation, a Roth IRA approach may not be the best choice. Rather, having the charity named the beneficiary of a traditional IRA retirement account is the better plan, tax advisors agree.  Because the charity as a tax-exempt organization would not be subject to income taxes upon receipt of the IRA funds, conversion to a Roth would needlessly reduce the amount the charity receives.

Regardless of whether you have just enough to meet your retirement needs or you exceed the amount required to fulfill your goals, it’s wise to give consideration to your legacy assets. Not only will you be confident about the disbursement of your assets, you’ll optimize your tax benefits for yourself and your beneficiaries.

Your CPA can review your current retirement plan or help you anticipate future needs. Our tax and estate specialists at Diamond & Associates are ready to help you plan for your financial future.  Please call us to make an appointment.