By Seymour Goldberg, CPA, MBA, JD

Protect your retirement assets and integrate them into your overall estate plan, with the help of a professional advisor. Don’t leave anything to chance. 401(k)s, pension and profit sharing plans, Keogh plans, 403(b) arrangements, section 457 plans and IRAs may all hold substantial assets. It’s crucial to find a professional advisor who not only knows the basics of estate planning but who can also successfully integrate these retirement assets into the plan.

Take Advantage of Tax Relief Legislation

 

1. The Taxpayer Relief Act of 1997

Ask your advisor how to take advantage of the expanding increases in the estate tax threshold exemptions. The Taxpayer Relief Act of 1997 (1997 Act), for example, generally exempts a federal taxable estate of $675,000 in 2001 from the federal estate tax.

2. The Economic Growth and Tax Relief Reconciliation Act of 2001

This act phases out and repeals the federal estate tax and federal generation-skipping transfer tax.  Under the 2001 Act for the years 2002 through 2009, the uniform credit exemption amount is as follows:

                                    Calendar                                  Estate and GST
                                       Year                                      Exemption Amount
 
                                     2002                                       $ 1 million
                                     2003                                       $ 1 million
                                     2004                                       $ 1.5 million
                                     2005                                       $ 1.5 million                 
                                     2006                                       $ 2 million
                                     2007                                       $ 2 million
                                     2008                                       $ 2 million
                                     2009                                       $ 3.5 million

In the calendar year 2010, the federal estate tax and federal generation-skipping transfer tax are repealed.

Prior to the calendar year 2010, the professional advisor should work with these new estate tax rules in order to save you, the client, as much estate tax liability as possible.  The advisor should develop and implement innovative tax planning techniques to take full advantage of the new rules.

The advisor should work with you, the client, to develop a balance sheet so that an effective estate plan may be drawn up and executed.  Many clients may not have sufficient probate assets available to take advantage of the expanding estate tax exemption amounts. However, the client may have non-probate assets that may be used in a manner that makes effective use of the expanding exemption amounts.

An existing will or revocable trust arrangement may not work if the assets subject to the will or revocable trust are not sufficient to satisfy the exemption amounts.

NONPROBATE ASSETS

 

Examples of assets that are not subject to a will or revocable trust include the following:

            1. Life insurance proceeds that are payable to a beneficiary other than the decedent's estate;

            2.  IRA benefits payable to a beneficiary other than the decedent's estate;

            3.  Jointly held personal property;

            4.  Jointly held real property; and

            5.  Retirement plan benefits payable to a beneficiary other than the decedent's estate

If retirement assets must be used in whole or in part in order to satisfy the expanding estate tax exemptions, then decisions must be made on how best to use these retirement assets to take advantage of the changes that were made in the 2001 Act.

USE OF RETIREMENT ASSETS IN AN ESTATE PLAN

There are several approaches your professional advisor may take. These include:          

1. Selecting children as the primary beneficiaries of retirement accounts.

            2.  Creating a trust for the benefit of each child and then selecting the trust as the beneficiary of retirement accounts.

            3.  Creating a trust for the benefit of each grandchild and then selecting the trust as the beneficiary of retirement accounts.

            4.  Creating a trust for the benefit of the spouse and then selecting the trust as the beneficiary of retirement accounts.