Eight Key Estate-Planning Tips You Can Take to the Bank

By Joy Matak and Rocco Marotti
There is no time like the present to get your finances and your estate in shape.  The federal exemption from estate taxes has never been higher, and income taxes are relatively low.  Here are eight estate-planning tips you can take to the bank (or your financial advisor).
1. Reduce your taxes and protect your wealth
The federal estate tax exemption as of January 1, 2019 is $11.4 million.  This exemption is scheduled to be reduced by half in 2026.  If the so-called “blue wave” of 2018 continues through the 2020 elections, the federal estate tax exemption could be changed much earlier than current law requires.  Responsible planning may be structured to reduce your taxable estate, save income taxes and protect your assets from creditors—in a way that permits you to continue to have access to your assets.
2. Update your plan
If you have a trust that's even five years old, you may need a more up-to-date trust drafted to be more powerful, robust, tailored and flexible.  Flexibility is key, because the world keeps changing, as do the stock market and tax laws.  Trusts that were set up more than a few years ago are unlikely to provide the robust terms that up-to-date trusts provide, such as a modification provision, having trust protectors who can monitor trustees and make midcourse changes and more.  
3. State income tax issues
Now that federal tax reform has reduced state and local tax deductions, it may be time to consider moving that trust from a high-tax jurisdiction to a state that has reduced or eliminated state income taxes for trusts.  States such as Nevada, South Dakota and Alaska have enhanced the benefits of moving there by increasing asset protection.  
4. Strategic charitable giving
You may be able to achieve an estate tax benefit, and possibly reduce income taxes, through charitable trusts.  Tax reform improved these opportunities by allowing more of your charitable dollars to be deductible in the year of giving.   
Republicans and Democrats came together last year—to limit your opportunities to leave your IRA to your grandchildren in a tax-deferral strategy that allows them to stretch the required minimum distributions over their lifetimes.  The Setting Every Community Up for Retirement Enhancement (SECURE) Act made its way through Congress with bipartisan support and was signed into law on December 20, 2019.
6. Prenuptial agreements/divorce
Prenuptial agreements should be drafted to conform with any planning that has been done, whether by the future spouses or by third parties for their benefit.  It is important to involve an estate-planning professional in the process of negotiating a prenuptial agreement so that separate property is kept from being commingled with marital property.  Under recent revisions to the Internal Revenue Code and related regulations, a surviving spouse may be able to use a deceased spouse’s unused lifetime exclusion to make gifts (a “portability election”).  This opportunity is only available if a federal estate tax return for the deceased spouse is filed.  The surviving spouse is the only person who can make the portability election and the only person with an interest in the value of portability.  Therefore, a prenuptial agreement should specify whether the surviving spouse has the right to require that a federal estate tax return be filed for a deceased spouse solely for the purposes of preserving portability.  The prenuptial agreement should also clarify who will pay for the preparation of the federal estate tax return. 
7. Insurance
It is important to review insurance policies regularly to ensure that your family and closely held businesses will have enough liquidity and resources available in the event of an untimely death or disability.  Several insurance companies have recently created combined life and long-term care policies that can cover the costs associated with a disability. 
8. Convert to a Roth IRA
Tax reform lowered federal income tax rates for many taxpayers who may be able to take advantage of converting a regular IRA to a Roth IRA.  If structured thoughtfully, you may be able to use charitable contribution deductions or harvest losses to offset some of the gain that would result from the conversion.
Joy Matak, JD, LLM is a principal at CohnReznick LLP and Co-Leader of the Firm’s Trusts and Estates Practice.  She has more than 20 years of diversified experience as a wealth transfer strategist with an extensive background in providing tax services to multi-generational wealth families, owners of closely held businesses and high-net-worth individuals and their trusts and estates.  She may be reached at [email protected].
Rocco Marotti, CPA is a partner and CohnReznick LLP's Law Firms Industry Leader.  He is also a member of the Employee Benefit Plan practice.  He has more than 20 years of variegated public accounting, consulting and tax experience.  As leader of the Law Firms Industry, Rocco focuses on servicing law practices and individual attorneys.  He has developed significant understanding of law firm management and other issues impacting the legal professional.  In addition to performing audits and reviews of law firm financial statements, Rocco audits law firm employee benefit plans.  He may be reached at [email protected].
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