Estate and Income Tax Preparation in the New Year

Estate and income tax planning requires advance preparation. Now is the time to get your financial affairs in order. Make sure that you’re prepared by having the right tax planning in place, as well as by maximizing your tax savings from your retirement account after age 70½.

Many people have revocable trusts in place, which can reduce expenses at death by eliminating probate fees, give you privacy, as well as create asset protection for your surviving spouse and children. If you created a revocable trust more than five years ago, it is likely that your trust contains outdated estate tax planning provisions. Today, the estate tax exemption is much higher than in previous years ($5.34 million), so estate taxes affect only the very richest families at death. Today, most families would be better served by implementing income tax planning into their revocable trusts. For this reason, it’s important to visit an experienced Elder Law attorney to have your revocable trust reviewed for old tax plans which now may create more tax for your family, so that your trust can be amended and not impact your children negatively.

It’s also important to maximize your tax savings with your retirement account once you reach the age of required minimum distributions. Most seniors have contributed to IRAs, 401ks or 403bs throughout their lives. Once you reach the age of 70½, you are required to withdraw a certain amount of money annually. Most seniors don’t want to take more than their required minimum distribution from their retirement accounts, because the distributions are taxed as ordinary income. However, it may be better to withdraw these funds now while they are in a lower income tax bracket rather than leave the account to their children, who are likely to be in a higher income tax bracket.  It may be better for seniors to receive 90 cents on the dollar now rather than their children only receive 65 cents on the dollar as a beneficiary.  It depends on your personal financial situation and the current or retirement needs of your children.  Even if you withdraw over the required minimum distribution, in the early years your IRA should continue to increase each year with good investments. Finally, in NC, retirement accounts are countable assets for government assistance, so if you are unmarried, you may have to spend down that account. For this reason, spending your retirement account above the required minimum distribution over time provides many advantages. The bottom line is this—don’t assume that it is best to only take the required minimum distribution each year.

Many folks ask whether it makes sense to convert a traditional IRA to a Roth IRA.  The time to establish a Roth or convert an IRA to a Roth IRA is when your tax rate is low—for most people that is early in their career and sometimes late in their career.  It never makes sense when you are in the top tax brackets unless you are doing it estate tax planning purposes or to create a fund for your children.  While you are in your top producing years, you will do better with a traditional IRA and pay the tax (at a lower rate) as you take distributions in retirement.

If you’re trying to get your affairs in order and become better prepared with your estate and income tax planning, consider W.G. Alexander & Associates – we offer a unique blend of asset protection, Elder Law and estate planning.  You can also attend our free seminars and learn more through our website at or call us at (919) 256-7000.

Attorney Bill Alexander discusses these issues and more every Tuesday morning on W.G. Alexander & Associates’ radio program, “Asset Protection Today,” on TalkRadio 850 WPTK (AM). Be sure to listen tomorrow  from 9:00-10:00 AM.  To listen to last week’s show, please visit WPTF’s on demand show blog by clicking here.