The President of the United States, Donald Trump, signed the Securing Every Community for Retirement Enhancement (Secure) Act into law on December 20, 2019. This bill has several important elements that will assist workers in increasing their retirement savings. If you're feeling overwhelmed, you can seek the assistance of an estate planning attorney Orange County to assist you with the planning and processing of your will and estate.
The SECURE Act of 2019 also incorporates a number of measures that have an impact on how investors and homeowners handle their assets so that they can leave a good inheritance to their loved ones after they pass away.
The Secure Act has an impact on your estate planning in a number of ways, as follows:
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Taxation at a higher rate
Prior to the passage of the SECURE Act, beneficiaries of Individual Retirement Accounts (IRAs) or other retirement accounts were permitted to defer the start of the withdrawal process for as long as they lived. This permits a beneficiary to delay withdrawals for as long as 80 years, resulting in a significant reduction in the amount of income tax that they must pay in the future.
Stretch provisions for certain recipients, however, are no longer accessible as a result of the SECURE Act's modifications. Individuals who inherit retirement assets from a deceased individual retirement account (IRA) will only have 10 years to take the total amount in the account, which will be subject to Income Tax, as a result of this rule.
Those who are not Eligible Designated Beneficiaries (EDBs) are subject to this provision, which includes the following:
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The participant's spouse is entitled to participate.
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The participant's child who is under the age of eighteen
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The participant who is medically impaired or chronically ill is exempt from participation.
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The participant's sibling who is younger than the participant by less than 10 years and who is not related to the participant
All beneficiaries, with the exception of EDBs, will no longer be eligible for tax deferral in the future. Beneficiaries will be required to pay income taxes on the IRA they inherit over a 10-year period, beginning with the year after the death of the participant and ending with the year following the participant's death.
This may not appear to be a significant issue because they are effectively paying the same income taxes as they were previously, only earlier. But one must take into account the issue of tax brackets and the possibility that expediting the withdrawal procedure may place a beneficiary in a higher income tax bracket, resulting in them having to pay higher overall taxes as a result of their increased tax burden.
Inheritance is being reduced.
The loss of the stretch provision for many IRA beneficiaries, as well as the prospect of additional taxes, can result in a considerable reduction in the amount of inheritance a beneficiary receives from their parents.
If you're putting together an IRA or if you're a beneficiary of an IRA, this is a significant concern that should prompt you to make some adjustments to your estate planning.
You have the ability to make changes to your estate planning.
There are certain possibilities you can consider, but make sure you discuss them with your Orange County estate planning attorney before proceeding with any of these decisions.
Each individual's circumstances are distinct and will necessitate a more thorough preparation process on their part. To ensure that your assets are properly protected, you can consult with an estate planning attorney in Orange County to determine whether or not any of the following options will be appropriate for your circumstances.
First and foremost, you should think about investing your retirement funds in Irrevocable Living Trusts (ILT). Individuals who have substantial IRAs or retirement accounts will find this to be very advantageous.
Your retirement savings can be transferred into a trust account, such as an ILT, if you do not have an EDB as a designated beneficiary. Essentially, this is a trust account that goes into effect even while the grantor is still alive. It is also a legally binding agreement that cannot be modified without the consent of the beneficiary or beneficiaries.
Tax savings, asset protection against creditors, and eligibility for government subsidies based on income brackets are just a few of the advantages of asset protection through ILT.
The following are some instances of ILTs that assist grantors and recipients to reduce their tax obligations:
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The AB Trust. This is a joint trust account that married couples can utilize to reduce their estate tax liability. When one spouse passes away, the trust is divided into two parts: a survivor's trust for the remaining spouse, and a Bypass Trust for another beneficiary, depending on the circumstances.
When the first spouse passes away, the lifetime exception is triggered, allowing the surviving spouse to defer inheritance taxes until his or her own death.
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Bypass the concept of trust. In the event that an AB Trust splits, the bypass trust is subject to a yearly exemption limit, and if the total amount of the trust exceeds this limit, the beneficiary will not be liable for any Federal Estate Tax.
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QTIP trusts are trusts that hold qualified terminal interest property (QTIP). This trust is utilized by individuals who, after their death, wish to provide a source of income for their surviving spouse; because this income is subject to marital deductions, the value received by the spouse after the death of the first spouse is not deductible.
When the surviving spouse passes away, the remaining balance in the fund will be paid to the named beneficiary, if there is one, if there is no named beneficiary.
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The Charitable Remainder Trust is a type of charitable remainder trust. A charitable remainder trust is one in which the donor donates any interest earned from the trust to a charity or group of charities, or divides the income between charities and beneficiaries for a specified length of time.
Donors may be eligible for a federal income tax deduction based on the value of the trust for the life of the trust's existence. As soon as the period is through, the trust reverts to the beneficiaries, who will benefit from a large reduction in estate and gift tax liabilities.
This is a wonderful alternative for those who have assets that have risen in value, such as stocks.
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Grantor Retained Income Trust (Grantor Retained Income Trust) Grantors will be able to place assets in a trust, from which they will be able to generate an annual income, and they will be able to receive the assets at the conclusion of the trust's term without incurring any tax liability.
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Qualified Personal Residence Trust is a type of trust that qualifies as a primary residence. Because the grantor's residence is no longer included in their inheritance, this trust allows them to avoid gift taxes when transferring assets to beneficiaries.
In addition, because the grantor retains ownership of a portion of the home when the estate is transferred to the beneficiaries, the gift value of the property will be less than the fair market value, resulting in fewer gift taxes for the beneficiaries.
Second, if you currently have a traditional IRA, you should consider converting it to a Roth IRA.
If you plan to be in a higher salary category when you retire, this is a good sign for your financial future.
You can also obtain a permanent life insurance policy as a third option. When you purchase a permanent life insurance policy, you will be able to lower your tax burden both while you are alive and after you die.
When you have permanent life insurance, your money is protected, allowing you to qualify for income levels that are based on government benefits such as Medicare and Social Security.
In addition, it allows you to transmit your assets to your beneficiaries tax-free at a later point in time.
Locate the Most Appropriate Orange County Estate Planning Attorney
Our Orange County Estate Planning Lawyers can assist you in ensuring that your estate planning is up to date and that you do not incur any unpaid taxes. They will work to ensure that you have the counsel you require to handle your assets after you pass away.
Make contact with McKenzie Legal & Financial right away!
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