Common Questions from Couples Making Estate Plans

Couples Making Estate Plans

Couples making estate plans frequently ask some common questions regarding taxation of inheritance. In particular, what is the “best” way to name beneficiaries on life insurance and retirement accounts? And how does this action affect what is specified in one’s will? As always in such cases, specific questions require the input of qualified tax and legal counsel. But I will outline some basics that should apply in most instances.

Who is the beneficiary?

At death, property can pass by operation of a last will and testament, by beneficiary arrangement, or by how property is owned and titled. Many times, the estate owner has personal property, perhaps a residence or other real estate, bank accounts and investments, and a retirement plan.  Usually the will dictates the disposition of personal property and the investments. The real estate is transferred based on the name(s) on the title. The life insurance and retirement plan by beneficiary arrangement. It is always a good idea to review these documents, their titling, and beneficiary arrangements annually to be sure that the estate owner’s wishes will be carried out as desired. Coordination of these documents by one’s advisors is essential.

Married couples making estate plans might ask if they should name their children and/or grandchildren as beneficiaries on their retirement plans and life insurance, or if they should name their respective estates. Often this question is motivated by a desire to save on inheritance taxes. This question comes up often as clarity around taxes at death can be confusing. Confusion can set in regarding what assets are taxed and how they are taxed.

Estate Tax Exemption

Currently, there is an estate tax exemption on estates worth more than $13.6 million for individuals and $27.2 for married couples. As a result, most estates will not incur federal estate tax at death. All assets owned will be included in the estate for this purpose. After the beneficiaries receive the assets, any subsequent action they take regarding the disposition of those assets could be subject to income tax in their respective tax brackets. Additional planning can be entered into in some cases to mitigate this future tax.

With this in mind (and proper planning), most people will find that taxes at death may not be an issue. And if is under current law, steps can be taken to control such tax. Charitable planning, such as working with the Episcopal Community Foundation to include your parish in your estate plans, is certainly an option to explore. But you certainly don’t have to have taxable estate to benefit from charitable planning.

For more details on how this might be possible in your particular situation, please contact our Executive Director, Lindsey Hardegree.

Pat Renn (he/him) is the founder and president of The Renn Wealth Management Group and has more than 35 years of experience in the financial services industry. He is a member at the Cathedral of St. Philip where he has previously served as junior warden and endowment chair; he has also served as board member and endowment chair of Holy Innocents' Episcopal School.Learn more about the ECF Board of Directors.

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