Although many Estate Plans have a Revocable Trust as the foundation for the plan, Wills play an important role in a comprehensive Estate Plan. Alarmingly, most Americans don’t have a Will even though they know it’s important. As National Make-a-Will month comes to a close, let’s explore the often overlooked and neglected Estate Planning document, the Will.
Most spouses create Estate Plans that are intertwined. The plans work well on numerous levels allowing the spouses to benefit the surviving spouse and then distributing their joint assets to their children upon the death of the survivor. Even in a second marriage situation, it’s possible for the first spouse to die to create a trust benefitting the surviving spouse for life, but then going to children from a prior relationship upon the surviving spouse’s death. What happens when two spouses die at the same time or so close in time that it’s impossible to determine who died first? Most documents contain what’s called a “simultaneous death” clause that indicates that one spouse will be deemed to have survived the other to address just that issue. Thankfully, even if the documents lack that provision, or contain conflicting provisions, nearly every state has enacted the Uniform Simultaneous Death Act which also addresses the issue.
The SECURE Act of 2019 altered the landscape for IRAs significantly when signed into law. Just when advisors gained a level of comfort with the SECURE Act, the United States Treasury Department issued Regulations in early 2022 requiring RMDs under the 10-year Rule in years 1-9. After realizing that many individuals were unaware of that requirement, the Internal Revenue Service responded by issuing Notice 2022-53 suspending the requirement to take RMDS in 2021 and 2022. SECURE 2.0 came at the end of 2022 ushering in some welcome changes but adding unnecessary complexity to our retirement world by increasing the age at which certain individuals needed to begin taking RMDs. Individuals born in 1951 found themselves in the unusual situation of having taken what they thought were RMDs in 2023 required under SECURE before realizing that SECURE 2.0 delayed their RBD. For some, that meant a distribution from the IRA that was not an RMD, but for which the usual 60—day roll over deadline had already expired. The IRS issued Notice 2023-54 in response.
As the Baby Boomer Generation retires and eventually dies, the greatest transfer of wealth will occur and according to many sources, it will dwarf any prior wealth transfer. This transfer gives those anticipated to inherit the wealth a great opportunity to open the lines of communication with their families to plan for the shift that has already started.
When Estate Planning practitioners talk about the “Holy Grail” of Estate Planning, they generally mean the intentionally defective grantor trust which includes the assets contributed to it in the grantor’s income tax for income purposes but excludes such assets from the grantor’s estate for estate tax purposes. The 529 plan provides yet another example of the “Holy Grail” in Estate planning by allowing tax-free growth, control of the plan until the death of the grantor without estate tax inclusion, and protections in the event of bankruptcy, among other things.