Klitzman Law Group, PLLC

How to Make 2024 the Best for Retirement Finances

We all know what happens with New Year’s Resolutions—they’re mostly gone by February. A recent article from The Street, “9 Ways to Prioritize Your Financial Well-Being This Year,” explains how a proactive mindset can help you integrate positive management into your everyday life in 2024.

First, get organized! A cluttered environment can lead to a cluttered state of mind, increasing stress and reducing productivity. When was the last time you organized your finances? Preparing for taxes is a good time to take a day to go through old records, identify and gather what’s missing, update information, end unused subscriptions, set a budget, create your income tax folder and create a mindful bill-paying system.

Determine your financial goals for 2024 and beyond. If you’ve recently experienced a significant life event, like a divorce or marriage, or welcomed a new child or grandchild, now is the time to incorporate new goals, eliminate old goals and focus on the steps you need to achieve your new goals.

Have a values-based conversation with your spouse or partner. What is essential to both of you and how might you accomplish these goals? If you are single, make an appointment with your financial advisor to discuss your goals and what you can do to make them a reality.

Do you know what your net worth is? This is often used as a benchmark to understand your progress towards your goals. You should include investments, savings, equity in your home and other assets. Then assess your liabilities: mortgage, credit card debt, auto loans, personal loans, etc. Doing this every year will help you understand if you’re making good progress or may serve as a wake-up call.

Do you have an estate plan, or is your estate plan more than three to five years old? This is the greatest gift you can give your family. It includes how to settle your estate once you’re gone and how and who to manage your affairs while you’re living if you become incapacitated. An experienced estate planning attorney can create a plan aligned with your state’s law, so you don’t risk creating an invalid will, which will cause many challenges for loved ones.

Prepare digital assets. If you don’t have a list of all online accounts, including usernames, passwords, PINS and two-factor authentication information, start by taking inventory and documenting your information. Make sure your executor has access to this information.

Prepare a financial “go” bag. The news is filled with natural disasters. You won’t get a printed invitation if you need to evacuate in an emergency. Have copies of important documents, including IDs, insurance cards, healthcare directives, birth certificates and marriage certificates, ready to take with you at a moment’s notice. Include information about your prescriptions and other medical information.

It's always good to form good habits and tracking them keeps your activities and goals top of mind. Use a spreadsheet, calendar, or journal to hold yourself accountable and give yourself a feeling of satisfaction every day.

Finally, a values-based decision-making approach can help you reach your goals. An example is whether you want to make an extra mortgage payment or invest the money in your child’s 529 account. By identifying core values before setting goals, you can use your values to help prioritize what matters to you, aligning goals with values and actions.

Do You Know How to Probate an Estate?

Being asked to serve as an executor is flattering, as it shows someone you love trusts you enough to put you in charge of managing their estate. However, probating an estate is no simple task, says a recent article from The Mercury, “Planning Ahead: Do you really want to handle probating an estate on your own?”

Having an experienced estate planning attorney help with probate may be the difference between years of headaches and a few months of involvement, but not being overwhelmed with finalizing your loved one’s estate.

First, do you have time or energy to deal with many different bureaucracies? Financial institutions, insurance companies, annuity providers, governmental entities and other entities can be challenging.

Next, are you familiar with the laws, procedures and tax laws in Aunt Lucy’s state? If she lived in your state, you’re about to learn how your state works. If she lives in another state, you’ll need to learn a lot about how an estate is settled in a place you might never have been. However, you may need to travel to and take care of Aunt Lucy’s estate.

If your aunt owned property in more than one jurisdiction, being her executor may require you to become involved in a process called “ancillary probate,” where assets need to be transferred into the names of the beneficiaries listed in her will. You might need to work with an estate planning attorney from Aunt Lucy’s state to get this done.

Another consideration: are you prepared to navigate the family dynamics? This may not be too bad if you are Great Aunt Lucy’s only heir. However, you may become embroiled in family spats if your aunt had a family of children, grandchildren and great-grandchildren. If the family members are contentious, you may deal with more than bureaucracies.

A few other things you’ll need to know:

Some states have an estate tax, while others have an inheritance tax. Even if there’s no federal estate tax due on the estate, you’ll need to address these two taxes.

The inheritance tax follows the jurisdiction of the decedent, not the beneficiary. If the state has an inheritance tax, it doesn’t matter if you live out of state. Heirs still must pay the tax.

Non-probate property may still be taxed. In some states, like Pennsylvania, property passed through a Revocable Living Trust is still taxable for the state’s inheritance tax. So is property passing as “Payable on Death” (POD) or Transfer on Death (TOD). Jointly titled assets are taxable at a proportionate share of the value.

These details are just a few reasons an experienced estate planning attorney brings value to the estate. It’s not easy for a layperson to settle an estate without the help of skilled professionals.

Reference: The Mercury (Jan. 31, 2024) “Planning Ahead: Do you really want to handle probating an estate on your own?”

New Required Minimum Distribution Rules for 2024

In 2023, the SECURE 2.0 Act changed the age for starting RMDs (Required Minimum Distributions) to 73, and in 2033, the age will change to 75. Depending upon your income from RMDs and other sources, premium costs for Medicare could increase once withdrawals begin, and taxes may also be higher, reports the article “Don’t Overlook These New RMD Rules for 2024” from U.S. News & World Report.

RMDs are required distributions taken from traditional IRAs and 401(k)s after a certain age. There are expensive consequences for missing withdrawals, and some guidelines relating to charitable giving and Roth 401(k) RMDs.

Before the SECURE 2.0 Act, the age to start RMDs was 72. In 2024, if you were born between 1951 and 1959, you must start your RMDs after age 73. Were you born in 1960 or later? You can delay RMDs until you reach age 75.

Deadlines are important to know. You may get a little more time to take your first RMD. However, subsequent RMDs must be taken each calendar year. If you’re celebrating your 73^rd birthday in 2024, you have two choices: you can take your first RMD by December 31, 2024, or you can choose to wait until April 1, 2025. However, if you decide to wait until April, you’ll have to take a second RMD by December 31, 2025.

RMDs are calculated on the prior year’s account balance on December 31, so delaying an RMD isn’t always the best strategy. Having to take two RMDs in the same year will mean, in most cases, the RMD will be slightly higher for year two.

What you pay for Medicare Part B and D premiums is related to income. If you delay taking withdrawals until age 73, your income could be lower, and your premiums could be less. Once you start taking RMDs, your income may go up, and Part B and D premiums may be more expensive.

You'll face penalties if you fail to take an RMD at the right time. Before the SECURE Act 2.0, the tax penalty was 50% on the required amount not withdrawn. If you failed to take an RMD of $2,000, you’d need to pay $1,000 in penalties. The penalty is now 25%. This is better, but still costly. If you miss a $2,000 RMD, the penalty will be $500. However, if the error is corrected within two years, the penalty drops to 10%, so it pays to address the issue. In some cases, if you can prove the RMD was due to a mistake and demonstrate that reasonable steps were taken to address the issue, you might get lucky, and the IRS could waive the penalty altogether.

Talk with your estate planning attorney about tax planning for RMDs. There are several strategies, including making charitable donations directly from IRAs and 401(k)s, which may be appropriate for your situation.

Reference: U.S. News & World Report (Jan. 26, 2024) “Don’t Overlook These New RMD Rules for 2024”

What are the Important Steps in the Estate Planning Process?

Estate planning is about taking charge of your legacy and your life. Despite all good intentions, only one in three Americans has an estate plan, according to a recent article from Kiplinger, “10 Things You Should Know About Estate Planning.”

An estate plan does not prevent death or illness. However, it does protect the family from stress and grief. By creating an estate plan, you provide your loved ones with clarity about what you want to happen to your property upon your death.

Equally importantly, the estate plan explains your wishes if you have a serious medical condition and can’t make decisions or communicate yourself. A financial Power of attorney (POA) names someone to oversee your finances and do tasks like paying bills if you are alive but incapacitated. A healthcare POA names someone to make healthcare decisions on your behalf. A healthcare directive explains your wishes for medical treatment in different situations.

What happens if you don’t have an estate plan? Each state has its own laws for what to do when someone dies or if they become incapacitated. Having an estate plan means you are making those decisions yourself. The court may assign someone to make healthcare and/or financial decisions for you. However, they may not be the person you would have selected or make the decisions you would have chosen.

Beneficiary designations supersede your will. Any account with beneficiary designations will go to the person named on the document, regardless of what your will may say.

Trust funds provide control of assets during life and after death. A trust is a legal entity holding property for someone else’s benefit. The trust can be set up to control exactly how you want your money and property distributed after death.

When you die, the court reviews your will to ensure that it’s been properly prepared and gives your executor the power to perform their tasks. This is called probate and can take time. A good estate plan can take much or all your assets out of your probate estate, speeding up the process of distributing assets faster.

Estate planning includes tax planning. In 2024, the federal exemption is $13.61 million, but 17 states and the District of Columbia levy a state estate tax. Some states also have inheritance taxes. Your estate planning attorney will help you incorporate tax planning into your estate plan.

Don’t neglect your pets. You can express your wishes in an estate plan. However, a pet trust is better. It is enforceable and provides specific information about how you want the pet to be cared for and who you want to care for it.

Digital assets need to be addressed to protect assets and prevent theft. Create an inventory of your accounts, usernames, passwords and name a person who will be your digital executor.

Review your plan every three to five years with an experienced estate planning attorney.

Reference: Kiplinger (Feb. 1, 2024) “10 Things You Should Know About Estate Planning”

Plan for 2024 Income Taxes as the New Year Gets Underway

You may have many questions about the IRS’ adjustments. Now is the time to consider what moves to make in 2024 for the tax year ahead, according to a recent article from l Advisor, “Best Practices: 2024 Income Tax Planning.” Deferring income could provide tax savings, or bunching itemized deductions in 2024 to take a standard deduction the next year could help save money over the long run.

The current inflation-adjusted lifetime exemption—the amount the IRS permits an individual to give away throughout their lifetime without needing to pay federal gift tax—is, for now, still very high, at $13.61 million. Now is the time to speak with your estate planning attorney about options for philanthropy and grants, whether gifting to a charity, making direct contributions to an IRA, or supporting a 529 college savings plan.

A discussion should also take place with your CPA to discuss tax loss harvesting and liquidating assets depending on personal needs and market performance. Positioning your portfolio to maximize the benefit of a lower tax rate on long-term capital gains investments and qualified dividends should also be considered.

As we move through a presidential election year, tax chatter is likely to pick up. The sun-setting of federal estate tax exemption laws and the IRS’ increased scrutiny on high-net-worth individuals may impact estate planning and exemptions.

The IRS is funding thousands of new agents and adopting new technology, including AI and analytics, to improve oversight with a focus on pass-through entities including LLCs, GPs, LPs and S-Corporations, among others.

With the federal estate tax exemption anticipated to end at the close of 2025, now is the time to prepare. Maintaining the current exemptions for another ten years would cost the government $3.3 trillion, so it is likely sunset at the scheduled time. The rules cover higher standardized deductions, reduced estate tax, lower tax rates at all levels, qualified business income and a $10,000 limit on state and local tax deductions.

Reference: Financial Advisor (Jan. 25, 2024) “Best Practices: 2024 Income Tax Planning”

Should You Talk with Loved Ones about Your Estate Plan?

We think of family time as gatherings for holidays and celebrating joyful occasions. However, there are times when the business side of life needs to be addressed. The best time to share your estate plan information with the family is when you are well, mentally and physically, says the article “Financial Focus: Consider family meeting to discuss estate plans” from Vail Daily.

What should your conversation include?

What are your wishes for your estate plan? Do you hope to leave an inheritance for family members, support a family member in need, or create a legacy with a charitable organization? The family meeting is the time to clarify your thoughts with loved ones, especially if there are concerns within the family, such as a special needs member or economic disparities between siblings.

Be prepared for surprises. Your millennial children may be more concerned about you having a secure retirement than an inheritance.

If you have your estate planning documents in order, this is a time to discuss them. If you do not, make an appointment to meet with an experienced estate planning attorney to create a comprehensive plan. Your documents may include a will, a trust, financial power of attorney, health care power of attorney and end-of-life documents. Give your family members a general idea of your wishes, especially for end-of-life matters. This relieves them from having to guess what you would have wanted in times of incapacity or upon your death.

Talk about the roles you wish them to play. You will need to name an executor to administer your estate. They should be asked to take on this role before the time comes. You will also need a trustee and a successor trustee for any trusts. Choosing the right person for these roles involves acknowledging who is more capable—just because one sibling is older does not mean they are the best candidate to serve as executor.

For some families, the best setting for a family meeting is their estate planning attorney’s office. It is a neutral setting and people are less likely to fall into old behavior patterns (including spats) when they are in a professional office.

Let the family know this is not the final discussion about your estate plan. Encourage questions and, if necessary, offer to meet again. If the initial groundwork is set, you will have begun establishing a legacy for yourself and your family.

Reference: Vail Daily (Jan. 25, 2024) “Financial Focus: Consider family meeting to discuss estate plans”

Do Not Neglect Digital Estate Planning

You may think having a will and perhaps a trust or two is all you need for your estate plan to be complete. However, if you do not also have a “digital estate plan,” your online life, from emails to financial accounts, may live forever and leave your estate and your heirs vulnerable to identity theft, says a recent article from Consumer Affairs, “Your digital legacy could be exposed after you die.”

Do not feel guilty, since most people age 65+ are completely unaware of their digital legacies, while 75% of millennials have a digital executor in their wills.

The problem is, if your executor cannot identify and access your digital assets, they may be left online in perpetuity and could be accessed by thieves who know more about navigating the web and selling stolen assets than you or your heirs.

You could leave your digital legacy to fate. However, it would be far better to be proactive by creating a digital estate plan. This also reduces the chances of your heirs quarrelling over your intentions with digital assets, just as your will and trust do for traditional assets.

 

Start with an inventory. List all your online accounts, websites where photos are stored online, social media profiles and all other files. You should then document all your login credentials, passwords and security questions for each asset. You may wish to use a password manager to organize and encrypt the information.

Make sure your executor and heirs know what you want by providing clear instructions in a document like a Letter of Intent. This is not legally enforceable. However, it can convey your wishes properly. Be sure that the right person or people know where your digital assets inventory is located.

Remember, you do not want the inventory of assets in your will, since it will become part of the public record when the estate goes through probate. However, you do want it documented.

Make it legal and secure. Most states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which gives trustees the right to access and manage digital assets after the owner’s death or incapacity.

Talk with your estate planning attorney about how your state’s laws address digital assets and what actions you will need to take.

Reference: Consumer Affairs (Dec. 18, 2023) “Your digital legacy could be exposed after you die”

What Is the Purpose of a Living Trust?

There are so many misconceptions around trusts, especially thinking trusts are only for wealthy people, according to a recent article, “2 Key Benefits of Living Trusts” from Forbes. During your lifetime, a living trust is an extension of yourself. There are no tax benefits or tax liabilities until you die, when living trusts provide benefits compared to assets not held in trust.

What happens to different types of assets after death?

 

If you own assets with beneficiary designations, these will be passed to beneficiaries outside of probate. These are typically retirement accounts, life insurance, some investment accounts, pensions and annuities.

If you have joint ownership of assets, they will become the property of the surviving joint owner(s) after death. The most common jointly owned assets are real estate, bank and investment accounts.

If you own assets as an individual, they will go through probate. While bank and investment accounts do permit transfer-on-death (TOD) and payable-on-death (POD) elections to bypass probate, this is not appropriate for every situation.

Two of the most common benefits of having a living trust are avoiding probate or reducing the probate estate and having greater control over the distribution of assets.

If one spouse passes and owns all liquid funds (and/or a privately owned business) in their own name, the survivor may be left without funds to pay bills while the probate estate is being settled. Having a living will means the survivor, if named as a beneficiary of the trust, has access to assets during probate.

Probate also incurs expenses and can take months to settle an estate. Any assets going to through probate become part of the public record, which can create a host of other issues. A large estate in probate can become a burden on the surviving spouse and family.

When assets go through probate, the court has the final word on how assets are distributed. This may align with your will, but it might not. Suppose assets are held in a living trust. In that case, probate or at least reduce the number of assets going through probate and control the distribution of the assets without your personal financial information becoming part of the public record.

Your estate planning attorney can create a living trust, naming you as the trustee and a person to serve as a successor trustee. Your successor trustee will be responsible for distributing the assets in the trust upon your death.

There are many ways to create the trust. The spouse is typically the successor trustee, with varying levels of access to assets during the surviving partner’s lifetime, with the remainder going to children or relatives. Trust laws are state-specific, so speak with an experienced estate planning attorney to create a trust that suits your unique situation.

Reference: Forbes (Jan. 24, 2024) “2 Key Benefits of Living Trusts”

When was Your Last Estate Plan Check-Up?

For most people, estate planning includes preparing a last will and testament, trusts and important advance directives to prepare for incapacity, including Power of Attorney and a designation for a health care surrogate. Creating a comprehensive estate or updating an estate plan is on many people’s “to-do” lists, says a recent article from Kiplinger, “Estate Plan Check-Ups: Don’t Just Set It and Forget It.” Like most items on those never-ending lists, the goal is to get it done and move on to the next task. However, unlike some duties, the estate plan needs to be reviewed regularly.

Think of taking care of your estate plan as you do your annual physical, which is necessary even if you are healthy in the future. Your estate plan may be healthy now. However, you want to be sure it stays that way by having check-ups on a regular basis. If you have not gone for your physical or had your estate plan reviewed in a while, there are two appointments you need to make for 2024—one with your physician and the other with your estate planning attorney. Here is why:

Life is all about changes, from birth to death, marriage to divorce. Each of these life events may impact your estate plan. If your will was created before you were married or had children, it needs an update. The same is true if you leave your entire estate to an adult child who has proven to be less than responsible about money or choosing good friends.

Laws impacting estate plans change often. Changes in tax laws, estate planning regulations and inheritance rules could have already made your estate plan ineffective or invalid. Regular reviews with your estate planning attorney can ensure that your will takes advantage of new opportunities presented by these changes.

If your net worth has changed over the years, for better or worse, your estate plan needs to reflect those changes. Let’s say you own two pieces of real estate—a home and a vacant piece of land. If your old estate plan leaves the house to one child and the vacant land to another, their values may have changed dramatically in the last few years.

Beneficiary designations are part of your estate plan, even if they are not in your will or advanced care directives. Any account with the ability to name a designated beneficiary should be checked whenever you update your estate plan. If you do not, you may be passing assets on to ex-spouses or excluding new family members.

By regularly updating your estate plan, you can ensure that it reflects your wishes and will be effective in protecting your loved ones.

Reference: Kiplinger (Jan. 26, 2024) “Estate Plan Check-Ups: Don’t Just Set It and Forget It”

Estate Planning When a Loved One Needs Hospice Care

Many families discover their loved ones haven’t done any estate planning, only when moving a parent into hospice. Whether or not any last-minute estate planning can be done depends upon the loved one’s condition, explains the article “The Challenge of Last Minute Estate Planning” from HomeCare.

If they cannot speak for themselves and do not have a Power of Attorney prepared, last-minute planning is no longer an option. If they can speak for themselves, there may be time to complete a few tasks to make things easier for surviving family members. The family should immediately seek guidance from an experienced estate planning attorney. Here are the steps to be implemented.

Create or update the will. If there is no will, have one created as soon as possible. If one exists, it needs to be reviewed and updated. Use this opportunity to communicate their wishes with family members and others to prevent misunderstandings.

Designate beneficiaries. Ensure that all accounts (bank, retirement, life insurance policies, trusts) have updated designated beneficiaries.

Consider a Revocable Living Trust. If time permits, a revocable trust could be considered for certain assets to take them out of the probate estate and provide flexibility in managing the estate.

Power of Attorney and Healthcare Proxy. They’ll need to designate someone they trust to make financial and healthcare decisions on their behalf.

Guardianship for minor children. If the person entering hospice has minor children, they can designate a guardian in their will to ensure the children’s care and well-being. Someone who is terminally ill at a young age usually has thought about who they want to care for their children. However, this needs to be put into the will.

Emergency document kit. It’s a good idea to prepare a document kit including important information, including a list of assets, passwords, insurance policies and contact information for the estate planning attorney, CPA and financial advisor. Keep these documents in a secure and accessible location.

Digital assets. Create a list of assets, including user logins, passwords and the nature of the digital asset. Include instructions for managing or transferring digital assets, including social media, email and online accounts. There are ways to create legacy contacts for social media, so the accounts can be memorialized or shut down in the future.

Discuss and finalize important decisions. Wishes about end-of-life care are more important than ever. Do they want to be kept alive by artificial means, or is pain management their primary concern? If possible, have these discussions in a supportive and loving manner. A hospice counselor or death doula may be helpful.

Ideally, estate planning should be done long before hospice becomes necessary to ensure that the estate is handled correctly, and a person’s wishes are followed. When last-minute estate planning is needed, it’s critical to collaborate with an experienced estate planning attorney.

Reference: HomeCare (Jan. 16, 2024) “The Challenge of Last Minute Estate Planning”