Top 3 estate planning tax tips you should know

On Behalf of | Aug 19, 2019 | Estate Planning |

At the Law Offices of Alice A. Salvo in California, our mission is to help our clients establish their estate plans and keep them updated as laws, particularly tax laws, change. It should come as no surprise to you that tax laws are never written in stone. They can and do change whenever Congress decides to change them. Take the Tax Cuts and Jobs Act of 2017, for instance, that went into effect last year. sets forth the following three estate planning tax tips that you should be aware of.

  1. Enhanced exemptions are only temporary

One of the main provisions of this sweeping tax reform was that both the federal estate tax exemption and the transfer tax exemption rose to $11.4 million for an individual and $22.8 million for a married couple. However, these new rates apply only during the years 2018-2025. After that, they go back to the old rates of approximately $5.5 million for individuals and $11 million for married couples.

  1. No gift tax “clawback” provisions

If you are one of those people who has hesitated to take advantage of the expanded transfer tax exemption for fear your gifts will come back to haunt you taxwise if you die after 2025 when the old exemption rates return, fear no more. Per new IRS guidelines, gifts that you make between 2018-2025 will not be subject to a “clawback” should you die after 2025.

  1. Inheriting an IRA or a Qualified Plan

If you designate your spouse as the beneficiary of your IRA, (s)he can wait until age 70-1/2 before beginning to take the required minimum distributions. The RMD amounts will depend on whether or not you yourself die before or after your RMD withdrawals have begun. Should you designate someone else as the beneficiary, however, (s)he will have to take all the funds within five years of inheriting them or as otherwise determined by her then life expectancy.

With regard to 401(k)s and other qualified plans, the tax consequences to your beneficiary are potentially even worse. Regardless of whether or not you designate your spouse or someone else as your beneficiary, (s)he will need to take the qualified plan’s funds in an immediate lump sum payment, resulting in an immediate tax liability. Fortunately, however, (s)he can roll these funds into an inherited IRA.

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