Estate Planning Upon Retirement

Try as estate planning attorneys might, many people wait until retirement to do even basic estate planning.  But waiting to plan until then is better than not planning at all.  An estate planning attorney’s approach to a couple entering retirement will depend on the retired couple’s family and asset situation.  There are many things to take into consideration, such as health, wealth, and long-term goals.  Both Ray and John discuss all of these issues with the client, and work with the client to meet the client’s short term and long term planning goals.  But what issues do we normally look out for?

Susan and Steven have both just retired.  Susan is 62, and Steven is 65.  They’ve worked hard and saved, and have put themselves in a good position.  Each has $1 million in tax-deferred retirement plans (such as IRAs, 401(k)s), they own their modest home outright, and they have a modest beach condo in South Carolina.  They also have cash savings of roughly $300,000.00.  Their children are now both grown and have children of their own. 

Susan and Steven both desire to live retired life to the fullest.  At this point, asset protection for them is not a primary concern – the primary concern is that their estate is easy to administer, and that probate expenses be minimized.  Additionally they want to ensure that any estate tax liability is either eliminated or minimized.  Their son, Steven Jr., is a bit of a spendthrift, so they want to try and make sure that anything payable to him is controlled to ensure that the money lasts. 

There are several things to consider when looking at Susan and Steven’s estate and trying to align it with their stated goals.  The first is that the majority of their funds are locked up in tax-deferred plans.  Generally speaking, Susan and Steven will have to pay income tax on funds distributed to them from those plans, with each of them being forced to take a set amount at age 70½.  Upon death, those funds will either be rolled over and distributed to the surviving spouse, or if there is no surviving spouse, to the named beneficiaries.

Distribution of tax-deferred funds upon the death of the original owner is tricky, and can cause serious tax consequences to the beneficiary if proper tax and estate planning is not completed.  In Susan and Steven’s case, proper planning is necessary because they want to ensure that any funds distributed to Steven Jr. are subject to restrictions.  There are several different methods for dealing with funds distributable from a tax-deferred account, and each one has positive and negative elements.  Needless to say the decision should be made in conjunction with an estate planning attorney and a tax expert, but often times the desires of the parents can be met. 

The next thing to consider is ease of administration and elimination of probate costs.  In Susan and Steven’s situation, they have money and land in North Carolina, and land in South Carolina.  Were they to only do wills, they would have to open estates in both North and South Carolina.  However, the need for estate administration in both states can be nearly eliminated by the creation of a revocable trust.  A revocable trust would hold all of the real property along with their cash assets, and would eliminate the need to open an estate in either North Carolina or South Carolina to pass the real property to their children.  Additionally, the trust can be structured so that Steven Jr’s share is held for his benefit but not available to him for outright distribution.  The trust can also be made beneficiary of all insurance policies (along with the tax-deferred accounts) to ensure that all funds are distributed in the way that Susan and Steven desire. 

Updating your estate planning at retirement (or planning for the first time!) can ensure that your estate is distributed just as you and your spouse desire, minimize expense exposure, and make the administration of your estate a relatively uncomplicated task. 

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