April 15th may be recognized nationwide as Tax Day, but it's also a great time to re-evaluate your estate plan. All estate plans have unique tax strategies, and there's no better time to see the potential impact of taxation on your estate than when you're filing your returns.
Benefits of Reviewing Your Estate Plan at Tax Time
If you have an estate plan, it's essential to review your documents at least once a year to ensure you have used your plan to its full advantage. After filling out your tax forms, all of the critical information you need for estate planning (such as your taxable income, next-of-kin, banking and investment accounts, and filing status) will be fresh in your mind, making April 15th the perfect time for an annual review.
If you're concerned about current or future taxation, an estate planning attorney can help you find ways to:
- Reduce your taxable income. The amount of tax you pay on assets during your lifetime directly affects the value of your estate. An attorney can determine whether you could reduce income taxation to meet long-term and short-term goals. For example, certain deductions (such as donations to charity and mortgage interest) can significantly lower your taxable income. In addition, any contributions you make to retirement plans (such as IRAs or flexible spending accounts) will create deferred income at a reduced income tax rate when you retire. Finally, retaining more of your gross income will allow you to leave a more considerable inheritance to your heirs.
- Maximize gift tax benefits. The federal government allows individuals to make gifts of up to $15,000 per year without incurring estate or gift taxes. Many people don't make as many transfers as they could each year, losing the chance to pass tax-free assets directly to their heirs. In addition, individuals can transfer personal assets valued up to $11.7 million over their lifetime—an exemption that few people use to full effect.
- Create or fund your trust. Assets distributed through a last will and testament will have to go through probate, making them subject to taxation. In contrast, assets in a trust are "owned" by the trust, so they pass directly into the control of the successor trustee. As trust beneficiaries, your loved ones will avoid the delays and costs of probate, receiving their inheritances quickly and according to your wishes. If you have a valuable life insurance policy that you want to provide income for your family, a life insurance trust removes the policy from your taxable estate. Or, you could set up distributions through a charitable trust and reduce your income taxes during your lifetime. Whatever your wishes, we make sure your trusts have been adequately funded so that your assets are protected.
- Reduce the probate estate. One of the easiest ways to reduce your taxable estate is to designate beneficiaries for non-probate assets, such as bank accounts, life insurance policies, brokerage accounts, and pensions. Under the law, these accounts pass directly to the beneficiary you named on your payable on death (POD) or transfer on death (TOD) forms. Unfortunately, many people forget to complete these designations, fail to review them over the years, or lose them when the account is transferred to a new company. If you never designated a beneficiary—or worse, named a former partner—the balances in these accounts will go to the wrong people. We can review your designations to make sure they are current and name contingent beneficiaries if your primary beneficiaries precede you in death.
- Leave a paper trail for your family. Your loved ones must know where to find your estate planning documents. We can compile your will, trust instruments, healthcare directives, legacy letters to your family, and instructions for the executor of your estate into one complete file to ensure your final wishes are followed to the letter.
At Landskind & Ricaforte Law Group, P.C., our estate planning and administration attorneys can manage potential taxation now and after your passing. Contact us today through our online form to learn how we can be of assistance.