New Laws Open 6 Estate Plan “Wormholes”
Law changes have created incredible estate planning opportunities for savvy Americans. However, the massive changes may have made many estate strategies outdated.
If you haven’t created or reviewed your estate plans in light of these new rules, you’re at risk of…
Accidentally disinheriting your spouse (because of an outdated trust or estate strategy)
Failing to take advantage of a temporary tax window (just through 2025)
Shortchanging your loved ones by leaving Uncle Sam too much of your hard-earned money
Forcing your loved ones to liquidate their inheritance to pay taxes (because IRA rules changed)
All because your will, trust, or estate plan hasn’t been updated to reflect the new laws.
Right now, you’ve got a limited window (just until Dec. 31, 2025 or maybe sooner if lawmakers take these opportunities away) to take advantage of the possibilities introduced by recent laws.
1. DON’T ACCIDENTALLY DISINHERIT YOUR SPOUSE! Plans created prior to 2017 often included formulas based on old federal estate-tax exemption amounts (as low as $675,000 in 2001).1 A consequence of an outdated strategy could accidentally pass your entire estate to children or heirs, leaving your spouse with nothing. Your next step: Do you have a dangerously outdated estate strategy that leaves your spouse or loved ones at risk?
2. YOU AND YOUR SPOUSE CAN GIVE DOUBLE TAX-FREE Current laws doubled the federal estate and gift tax exemption through Dec. 31, 2025 (it’s $12.06 million per person or $24.12 million per couple in 2022 but is scheduled to return to 2017 levels soon). Savvy Americans are taking advantage of the higher limits to revisit old estate strategies and make gifts before the deadline expires. Your next step: Do your estate plans take advantage of the temporary (substantially higher) estate tax exemption?
3. LEVERAGE ADVANCED TRUST STRATEGIES Recent law changes opened the door to advanced trust strategies that could potentially help you immediately cut your income tax bill, protect yourself from lawsuits, and create multi-generational tax shelters while giving you control over your assets now and in the future.3 Your next step: Does a trust make sense for you?
4. REVISIT YOUR POWER OF ATTORNEY When the estate tax exemption was lower, it made sense to give a trusted agent the power to make financial gifts (to avoid estate tax). Today’s much higher estate tax exemption means you might need to reconsider giving someone else too much control over your money. Your next step: Does your current Power of Attorney include the ability to make financial gifts?
5. REVISIT YOUR IRA "STRETCH" STRATEGY
You should reconsider leaving your IRA or 401(k) to children or grandchildren who will "stretch" the distributions over their lifetimes to create a multi-generational legacy. The stretch IRA was killed by the 2019 SECURE Act, which required most non-spouse beneficiaries to withdraw (and pay taxes on) the full value of an inherited IRA or 401(k) within 10 years of inheritance. 4 If you have one, you must act immediately to update your strategy.
Next, consider whether your estate plan includes a stretch IRA.
6. A TRUST MAY NOT BE THE BEST IRA BENEFICIARY.
"Pass-through" or "conduit" trusts were common ways to protect assets while allowing heirs to take advantage of the benefits of an inherited IRA. Many of the advantages of making trusts the beneficiaries of IRAs have been eliminated by recent legislation. If you have one, you must act immediately to update your strategy.
Your next step: Is your IRA beneficiary a trust?
CRITICAL QUESTIONS TO ASK:
TAKING CARE OF YOUR LOVED ONES
Are you currently making gifts to your loved ones? If your lifestyle is secure, giving children or grandchildren the gift of an education, down payment, or other milestone can be immensely fulfilling.
Do you have a will? Has it been reviewed within the last 2-3 years? Have you named beneficiaries for each of your accounts? Do any need to be added or removed? Common reasons for updating include: marriage (or divorce), death, and the birth of a new child or grandchild.
Have you recently married or divorced?
Do you have a blended family to consider? Is there a charity that you would like to include in your strategies? Important! There are a number of charitable giving strategies that can help you give tax-free gifts to the causes you care about — and potentially reduce the taxes you pay now.
Do you need to protect any beneficiaries from life issues, such as divorce, addiction, or creditors?
Do you have any children with special needs or disabilities to provide for?
Do you have wishes for how you want your gifts to be used by your loved ones? If you have minor children, have you named guardians or personal representatives?
Are they up-to-date?
Is keeping your affairs private important to you? Avoiding public probate and keeping gifts private is important to many people we’ve worked with.
Have you shared your wishes with your loved ones?
Are you concerned about family dynamics around inheritance? TAKING CARE OF YOURSELF
Do you have strategies to protect your hard-earned money from creditors or lawsuits? If you have multiple properties, hold significant wealth, own a business, or work in a lawsuit-plagued industry, your strategy should protect what you’ve built.
Do you have advance directives to protect your wishes if you are unable to advocate for yourself?
Does your Power of Attorney need to be updated?
Does your Health Directive still reflect your wishes?
Is your spouse or family member capable of taking over financial responsibilities if you no longer can?
Do you have a list of accounts and login information that’s easily accessible?
PROTECTING YOUR HARD WORK
Do you expect your estate to exceed federal exemption amounts?
Do you own assets that are not included in your current estate plan?
Do you own assets in multiple states or countries?
Do you own a business? Do you have succession plans in place?
Are you using all the tools available to you to help protect your assets now and transfer them in the most tax-efficient manner?
Do you understand the role life insurance can play in transferring your assets tax-free to the next generation?
We can help you with estate planning! Where should we begin? Let me know...
Paavan Kotini, CEO & Principal Advisor
Kotini & Kotini
1 - https://www.taxpolicycenter.org/sites/default/files/briefing-book/how_many_people_pay_the_estate_tax.pdf 2 - https://www.kiplinger.com/taxes/601639/estate-tax-exemption-2022 3 - https://www.kiplinger.com/article/retirement/T021-C000-S004-update-estate-plans-in-light-of-new-tax-law.html 4 - https://www.marketwatch.com/story/inheriting-a-parents-ira-or-401k-heres-how-the-secure-act-could-create-a-disaster-2019-12-26