By Bill Bischoff
The unified federal estate and gift tax exemption for 2019 is a historically huge $11.4 million, or effectively $22.8 million for married couples.
Even though these big exemptions probably mean that you are not currently exposed to the federal estate tax, your estate plan may still need updating to reflect the current tax rules.
You also have to consider the distinct possibility that today’s ultra-favorable estate and gift tax rules may be on life support. So, you may be exposed to the federal estate tax in the near future, even though you’re covered right now.
Finally, you may need to make estate planning changes for reasons that have nothing to do with taxes.
Here is some advice to heed whether or not you are “rich” enough to be worried about exposure to the federal estate tax. Year-end is a good time to conduct your estate planning self-check, so let’s get started.
Update your beneficiary designations
Many people don’t understand that a will or living trust document does not override beneficiary designations for life insurance policies, retirement accounts, and so forth. As a general rule, whoever is named on the most-recent beneficiary form will get the money automatically if you die, regardless of what your will or living trust document might say. So, if you’ve failed to update your beneficiary designations because you forgot or think it doesn’t matter because you have a will or living trust, you have a problem. For some real-life horror stories that illustrate the problem, see my earlier column.
Beyond just ensuring that your money goes where you want it to go, another advantage of designating beneficiaries is that it avoids probate — because the money goes directly to the beneficiaries you’ve named by operation of law. In contrast, if you name your estate as your beneficiary and then depend on your will to parcel out assets to your intended heirs, your estate must go through the potentially time-consuming and expensive process of court-supervised probate. Your intended heirs, those you intended to get little or nothing, and other interested parties can throw up objections and roadblocks during the probate process. It can get ugly.
Here’s a to-do list to avoid that ugliness.
Life insurance policies, annuities, IRAs and other tax-favored retirement accounts, employer-sponsored benefit plans
Fill out and turn in beneficiary designation forms to establish or change beneficiaries.
Bank and brokerage firm accounts
Fill out and turn in transfer on death (TOD) or payable on death (POD) form to establish or change beneficiaries.
529 college saving accounts
Fill out and turn in beneficiary change form if you want to change the account beneficiary.
Name secondary beneficiaries
Naming a primary beneficiary is not always enough. Name one or more secondary (contingent) beneficiaries to inherit if the primary beneficiary dies before you do. Sadly, this is a common occurrence, and you should take the possibility into account.
Update your property ownership
If you’re married and own property with you and your spouse named as joint tenants with right of survivorship (JTWROS), the surviving spouse will automatically take over sole ownership of the property when the other spouse dies. If you own property with a non-spouse as JTWROS, the surviving joint tenant will automatically take over sole ownership when the other joint tenant dies. If that’s what you intend, and you’ve already set up JTWROS ownership, great. Nothing to do here. But if that’s what you intend, and you’ve not yet established JTWROS ownership, please add this to your to-do list and get it done pronto. Visit your friendly local real estate attorney.