Plan your estate and share the wealth
You’ve saved enough for a comfortable retirement, with something left over for your heirs and favorite charities. Are you finished? No way.
Unless you take steps to protect your estate, your legacy could be decimated by taxes, probate costs and family dissension.
Start by making sure you have the basics covered. You need a will, and you should designate a power of attorney for your finances and a health care proxy. These individuals will be empowered to manage your money and make decisions on your behalf should you become incapacitated.
You should also periodically review beneficiaries for your life insurance policies, bank accounts and retirement savings plans.
If you haven’t reviewed these designations for a while, they may not reflect life changes, such as the death of a spouse or a remarriage.
Next, consider whether you need a revocable living trust. A trust will let you avoid probate and ensure that your money goes to the people you choose.
You don’t need to wait until you’re gone to share your wealth with your favorite charities, and contributions made while you’re alive could lower your taxes.
If you’re 70 ½ or older, you can donate up to $100,000 a year from your IRAs directly to charity via a qualified charitable distribution, and after you turn 72, the QCD will count toward your required minimum distribution.
A QCD isn’t deductible, but it will reduce your adjusted gross income, which — besides lowering your federal and state tax bill — can also lower taxes on items tied to your AGI, such as Social Security benefits and Medicare premiums.
Finally, take advantage of a provision in the tax code that permits you to help family and friends while reducing the size of your estate.
In 2022, you can give away up to $16,000 per person to as many people as you’d like without having to file a gift tax return.
Estates valued at up to $12.06 million ($24.12 million for a married couple) are exempt from federal estate taxes. But unless Congress acts, the exemption will drop to $5.5 million in 2026.
In addition, 12 states and the District of Columbia impose an estate tax, and some have much lower exemptions than the federal level.