Erickson Advisors - Linda Erickson - HeadshotLinda P. Erickson

Linda P. Erickson, CFP®, is the president of Erickson Advisors and a registered principal offering securities through Cetera Advisor Networks, LLC, 336-274-9403

If you are wondering if the new tax law will make changes to your estate plan, the answer is “probably not.” The considerations for an estate of $1,000,000 are very different from those of estates over $10,000,000 however. If you fall into the latter category, call your attorney. If you are closer to the former, read on.

Think carefully before making large gifts of assets or property to your children or grandchildren that you have held for a long time, maybe even a lifetime. It’s fine to give away gifts up to the current threshold of $15,000 annually per person, but it’s better to let them inherit that long-held low cost basis asset and gain a step up in that basis upon your death. This will ultimately reduce or eliminate any capital gain tax they might incur upon the sale of that asset.

There is no change to any rules governing Inherited IRAs (Individual Retirement Accounts), so check that you have named a real person — NOT your estate — as the beneficiary of any retirement plan and rest easy. Assuming your heirs take receipt of that bequest into a Beneficiary IRA, there is no immediate tax on that transfer to your beneficiary upon your death. He or she can stretch out the receipt of that gift (and its taxation) over his/her lifetime.

If you have a Roth IRA, you have created one of the best wealth transfer vehicles available to us today. If not, the opportunity awaits. Any year in which you have a very large tax deduction, such as a year when you have extraordinary medical deductions, consider doing a Roth Conversion with some or all of your IRA. This decision must, of course, be made only after consulting with your accountant or tax advisor. You wouldn’t want to create more taxable income than the deduction would give you. This consultation must be done before you prepare your tax return. Don’t wait; ask about the possible deduction in the year it might occur. If you get the “go ahead” you may transfer money, which will be inherited tax-free. Your beneficiaries will be required to take annual distributions from the account but will pay no tax on those recurring annual “gifts” from you. How great is that!

As with most things in life, the devil is in the details. While you may have no substantial change to your estate plan as a result of the new tax law, you should review that plan including a review of your beneficiary designations on all of your accounts regularly. We suggest that review be done annually when you meet with your financial advisor.

For a comprehensive review of your personal situation, always consult with a legal tax advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.