Estate Planning for Retirees

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As you approach retirement, your estate plans may differ from those during other stages of your life. During retirement, a comprehensive estate plan must consider your financial needs, ensure they are met, and provide additional safeguards. The following are some ways to develop this type of plan.

1.  Purchase Long-Term Care Insurance

Having to reside in a nursing home or similar facility for an extended period of time can deplete your estate quite quickly. Keep in mind that a private room in a nursing home costs over $100,000, it is important to prepare for the possibility of needing this type of care. These costs can be covered by long-term care insurance, allowing your estate to remain in place for your other needs or provide an inheritance for your loved ones. It is less expensive to purchase this insurance when you are young.

2. Purchase Life Insurance

Life insurance is often purchased by people with young children in case of an untimely death. Even after you have died, life insurance can still be a valuable asset when planning your estate. Beneficiaries of life insurance can receive tax-free funds to offset tax obligations associated with inherited property. Your spouse, elderly parents, or other individuals who are dependent on you for financial support can also benefit from it.

3.  Maximize Your Retirement Contributions

Maximize your retirement contributions to enlarge your estate plan over the next few years. You can maximize your contributions by converting your retirement plan assets to a Roth IRA. A traditional IRA is funded with pre-tax money, and you will have to pay taxes on your Roth IRA conversion. There are, however, several benefits you may experience, such as:

  • Future withdrawals will not be taxed. This is important if you predict a higher tax rate when you withdraw funds.
  • You may be able to lower future estate taxes by converting funds to a Roth IRA and removing income taxes from the value of your estate.
  • Roth IRA withdrawals are not included in your modified adjusted gross income and are not taxable.
  • Unlike traditional IRAs, Roth IRAs do not require minimum distributions, so you can keep growing them as long as you like.

Contributions to your retirement account can also be increased. You can contribute up to $6,000 yearly to your traditional or Roth IRA or up to $20,500 to your 401(k) if you are younger than 50 years.

For those 50 and over, you can now contribute up to $7,000 in an IRA account; you are allowed make catch-up contributions of up to $6,500 beyond the contribution limit in the following plans:

  • 401(k) (other than a SIMPLE 401(k))
  • 403(b)
  • SARSEP
  • Governmental 457(b)

In SIMPLE IRAs and SIMPLE 401(k)s, you can make catch-up contributions of up to $3,000 over the contribution limit.

4.  Consider Your Social Security Options

In retirement, Social Security benefits can provide some additional income. Benefits are based on your lifetime earnings (or your spouse’s earnings if you are claiming based on their record) and when you begin receiving benefits. Compare the potential benefit amount at different ages with your financial situation to determine the best time to take benefits.

5.  Consider Gifting

You can reduce your gift or estate tax by making annual gifts to your beneficiaries. A will can provide many benefits, including giving gifts to people during your lifetime, reducing tax liabilities, and avoiding arguments later if your beneficiaries don’t agree with how you left your estate. A person is not liable for gift tax if they give up to $16,000 per year per person.

Donating funds or other property to a charity is also an option. In addition to reducing capital gains taxes, charitable remainder unitrusts or annuity trusts can also be used to donate funds to charity.

6.  Plan for Disability

If you become disabled, your estate plan should include provisions for your care. There are several documents you should create, including:

Power of Attorney

A power of attorney allows someone to act on your behalf regarding your financial affairs. A financial agent can step in if you become ill or injured. This designation can give someone you trust control of your money and property.

Living Will

Without a living will or advanced medical directive, your loved ones could deplete your estate by insisting on extreme medical measures you would not have requested if you were able to do so. Documenting your wishes regarding end-of-life care is the purpose of a living will.

Health Care Proxy

In you are unable to make medical decisions for yourself, a health care proxy can act on your behalf.

7. Set up a Trust

A will may not always provide the type of structure you desire when leaving money or property to a beneficiary. Upon receiving a gift through a will, the beneficiary can use the property as they wish. It is possible to designate a trustee to manage your property according to your instructions with a trust. By creating a trust, you can instruct your trustee to pay for your son’s college education instead of leaving it to him. The trustee can pay for the medical needs of your adult children or make disbursements when they are older, such as 30 or 40. If you become disabled, you can instruct your trustee to pay for your medical expenses and insurance payments from trust funds. Establishing a trust can avoid costly legal interventions, such as probate and guardianship or conservatorship proceedings. As well as restricting disbursements, it ensures that your property is utilized according to your wishes.

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