There is no time like the present for investors to consider their financial situations and planning and act to make changes under current rules. With the national debt sky-high, the economy ravaged by COVID lockdowns and everyone seemingly asking for funding of a wide variety of pet projects, the one thing that seems certain is that the government will be squeezing more revenue out of taxpayers. Make no mistake: this revenue seeking won’t simply impact high income and wealthy taxpayers. Taxpayers at all levels of the economy will be facing increased government demands not simply for income tax but for increased taxes on services, on the sale and consumption of goods, on ownership of real and intangible property and more.

Most IRA owners have named one or more primary beneficiaries to the account in the event of the owner’s death. Oftentimes successor beneficiaries are also named to ensure the funds pass as desired where the primary beneficiary has died as well. The beneficiaries will be required to take distributions as specified in the tax code and pay the associated taxes, though they may also take additional distributions as desired. The distributed funds are not protected from the beneficiary’s creditors and a spendthrift may quickly exhaust the IRA.

As the pandemic with its related restrictions and uncertainties drags along, we are seeing more clients changing their near-term plans and goals.  Initially, many of us simply deferred activities, presumably for a few months while the pandemic (hopefully) ran its course. Now, with no clear end to the pandemic nor any return to something approaching normalcy in sight, people are making significant changes to their plans. These changes are wide ranging and appear to have affected different age groups in markedly different ways.

A feature of many 401(k) plans (as well as 403(b) and 457 plans) is the ability of the plan participant to take a loan from the plan to assist in meeting near term goals. This is particularly effective where there is no other desirable source of funds and the participant has stable employment. Such a loan can be a real benefit in times like the present where the pandemic has caused stress and change from what used to be normal.

The primary reason for considering this source of funding is the ability to avoid having the loan treated as a taxable distribution from the plan and so not subject to either regular income taxation or to the ten percent penalty assessed on early distributions for those younger than age 59½.

The question of what happens with one’s assets at death is a major aspect of planning for many of us. Necessarily, that planning must address the possibility of death being earlier or later than what normally might be expected and so directions should be in place to meet any eventuality. Of course, the beauty of the planning is that in most cases we can revisit the plan and update as circumstances change and time passes.

That brings us to those who have invested in qualified retirement plans and who have children who are presently minors.

In the context of financial planning, much attention is properly given to life insurance as well as to health, disability and long term care coverages for the clients we serve. The recent – and ongoing – pandemic and related issues have highlighted the need to understand and perhaps update coverage for business property damage or loss, premises liability, business interruption and event cancellations, as well as residential real and personal property coverages including loss of use.  This applies not only to ourselves and our businesses but to the wide variety of clients we advise.

A common technique for taxpayers with large IRAs and relatively lower income is to engage in conversion of traditional IRA funds to Roth IRAs. A conversion requires the taxpayer to declare as income the amount converted in the year the funds are removed from the taxable IRA and transferred to a Roth IRA. The obvious benefit to this technique is that under current law future appreciation in the Roth IRA is not subject to income taxation while distribution of principal from the Roth IRA is likewise not taxed.

It is always important to periodically review one’s estate planning to ensure that it stays up to date with client goals, changing circumstances, current tax law and more. This spring, with the enormous impact of the pandemic on most of us, is certainly a time to consider our planning and how we are protecting our loved ones. The task may seem daunting, but it is worthwhile to make sure a plan is in place no matter where you are or the state of your health.

Of course, if you are in one of the riskier categories for the pandemic, it is imperative to take a look at your situation and to be sure that things will be taken care of appropriately if you become ill, or worse.

A central goal of much estate planning is ensuring that assets pass to and are available for a person’s loved ones. One such method is the spousal lifetime access trust (SLAT), an irrevocable trust created by a lifetime gift to the trust which provides for the grantor’s spouse and children as beneficiaries. Using a portion of the lifetime exemption of the grantor for the transfer to the SLAT allows this trust to avoid gift tax when created and estate taxation in both the grantor’s and spouse’s estates at death.

One of the biggest changes under the Secure Act was the elimination of the stretch IRA approach utilized by many high net worth clients. The new law allows a surviving spouse as well as minors and some disabled persons to take benefits over their lifetimes while all other individuals must withdraw the balance of the IRA within ten years. Many clients have expressed concern with this change and a desire for alternative approaches for their qualified plan assets.
The charitable remainder trust presents a useful way to allow a person to take distributions over their lifetime instead of the new ten year limit.