Illinois Estate Planning and Elder Law Blog
Most investors have one overriding goal: building a sum of money saved that can be used in the future (also known as a nest egg). But some investors who are talented and lucky focus on something else: passing their assets to their heirs.
It’s not as simple as leaving a list of accounts. Steps taken years before your death can help minimize taxes and headaches for those who inherit. The main issues for investors to consider for their heirs include family relationships, estate and gift taxes, insurances, Roth conversions, annuities, and record keeping.
Most small investors don’t need to worry about estate taxes these days, since the first $11.4 million per individual, and $22.8 per married couple, is exempt. Also, assets that are passed down to heirs while the investor is still alive are exempt from taxes below $15,000 per year per recipient.
Life insurance can pass down substantial sums to heirs or just offset any taxes they might face on selling inherited assets. Term policies are the least expensive, but cover the insured for only a given number of years. Many insurance agents recommend a permanent policy that will last for life.
Investors that have IRAs and 401(k)s can convert them into Roth versions that don’t tax withdrawals. The trade-off is paying tax to convert to avoid tax on withdrawal, so its well worth it if the current tax rate is lower than one expected later.
Annuities are typically used to provide the owner with lifetime income starting immediately or some years after the policy is purchased. Since the annuity is customized by the policy owner, it is essential to know what the contract says.
It is also important that heirs inherit clear records. Keeping hard copies of these records as well as copies on a computer or on a cloud is best. An Important Documents Locator can be completed which outlines all assets, where they are held (brokerage firm, safe deposit box, etc.) and a list of important contacts.