In her feature story in the March 2017 issue of Investment Advisor, Nancy Hermann writes that for advisors, the beginning of the year is a good time to follow up with clients and help them revisit the basics of estate planning as well as to flag new trends and legislation.
This year is no exception. New presidents are often accompanied by new policies, and with tax season on the horizon, the next few months are a great time to review and possibly revise current plans.
There are four estate-planning best practices that are worth addressing with clients regularly, the US Bank Wealth Management expert argues, including
1) Clarify the intent of estate planning
2) Insist on reviewing asset titling
3) Make a contingency plan for disability
4) Choose the right fiduciaries
President Trump has promised far-reaching tax reform. And while it is most likely that the destiny of the estate tax, the stretch IRA and any other proposed tax law changes will be part of a broader-reaching tax reform package, and the final outcome is known only to those who have an ability to foresee the future.
So what can advisors do now to help clients protect their assets and the people they care about?
Make sure assets are protected. There are many reasons to plan other than estate taxes. There will always be irresponsible children, spendthrifts, lawsuits, divorce and other life issues that raise asset protection concerns that can be addressed by proper estate planning. Life happens, so it pays to plan now and address the future as it becomes more certain.
Plan for income tax impact. Clients should consider making gifts during their lifetime versus upon their death. If you’re over 70 ½, you can gift up to $100,000 tax free from your IRA directly to a qualified charity and have this donation count toward your annual required minimum distribution.
In addition, for those clients who wish to incorporate charitable giving into their estate plans, leveraging their IRA to accomplish this by naming a charitable beneficiary can be one of the most tax effective ways to achieve their giving goals. Not only do the gifted IRA assets escape estate tax, they would also escape any income taxes that would be owed by individual beneficiaries who inherit the IRA.
Draft for flexibility. Given the uncertainty of future tax legislation, planning with built-in flexibility would be beneficial to equip clients, families and fiduciaries with ways to deal with possible changes in the tax landscape going forward. Clients should talk with their attorney about the possibility of incorporating a trust protector into estate plans to provide a trusted individual with the ability to adapt to unforeseen changes, which may impact the ongoing administration of the trust if the client is unable to make the decision on his or her own.
A trust protector can be charged with any number of responsibilities as stated in your client’s estate documents, including the ability to adapt the trust terms to a changing tax landscape, oversee the acting trustees and possibly even alter the beneficial interests in the trust. Clearly, this is a decision that should be made with great care, limiting the powers of the trust protector to those that are critically important to the client.
— Read 9 Ways to Save on Taxes in Retirement on ThinkAdvisor.