There are many reasons to review your estate planning documents periodically. One event that should prompt you to pull out your estate planning documents is any revision made to the tax system. If you are reviewing your estate planning documents this year, consider the following tax issues that might impact you and your beneficiaries.

Many Tax Exemptions are Only Temporary

It is important to remember that several current tax exemptions are merely temporary. While the $11.4 million per individual transfer tax exemption is attractive, it will not last forever. After 2025, this exemption will return to $6 million per individual. This is not the only temporary part of the current tax code, however. It is critical for anyone planning for the future to create flexible estate planning strategies and consider these factors. An experienced estate planning attorney can help ensure that you are on the right track.

IRA Beneficiaries

If a person inherits an IRA, the distribution requirements depend on whether the beneficiary is a spouse or non-spouse. Spouses have the choice of rolling IRA assets into an inherited IRA or their own IRA accounts. Non-spousal beneficiaries are often required to either withdraw all funds from the IRA within five years.

Increased Estate Tax Exemptions

Tax reforms in 2017 increased the transfer tax exemption to $11.4 million per individual or to $22.8 million for married couples. Because the transfer tax exemptions include both transfers made at the time of a person’s death as well as during life, this change has created a chance for wealthy clients to protect an even larger amount of their assets from taxation. 

Inheritance Issues with Qualified Plans

Inherited IRAs are often capable of being distributed throughout the beneficiary’s life, but qualified plans like 401(k)’s and profit-sharing plans prohibit funds from being distributed in this manner. This means that when a beneficiary receives a 401(k), the funds must be distributed immediately in a lump sum, which results in immediate tax liability for the recipient. 

Know When to Avoid Clawback

A clawback is a term used when the Internal Revenue Service attempts to reclaim money from a taxpayer. When it comes to transfer taxes, the Internal Revenue Service has released guidelines confirming that large gifts from 2018 to 2025 can be made without the recipient later facing any type of clawback action. 

Portability is Valuable

Portability allows a surviving spouse to a combination of individual federal estate tax exemptions as well as first-to-die spouse exemptions. These regulations were not altered by tax reform. To ensure portability, however, a person must make sure to ask for it. Some spouses proceed through the estate planning process after the death of a spouse without understanding these distinct benefits. 

Speak With a Knowledgeable Estate Planning

The estate planning process is complex, but one of the steps that you can take to make this process much easier is to retain the assistance of an experienced estate planning attorney. 

Contact seasoned estate planning lawyer Jim A Lyon today to schedule a free initial consultation.