Celebrate Retirement: Update Your Estate Planning

If you are recently retired or considering retirement, it is a natural time to review and update your estate plan. As you transition to this new stage of life, here are some specific aspects of your estate plan that you may want to consider updating.

Alternate Executors and Agents under Powers of Attorney

Most couples create their first estate plan when they are expecting their first child or their children are young and typically list each other as their primary executors and agents under their powers of attorneys. At that stage of life, most of our clients select a parent or a sibling as their alternate executors or agents under their power of attorney. When these clients reach retirement age, their children are adults who are working and starting or have started their own families and are responsible enough to make important decisions. At this stage it typically makes sense for our clients to create new wills or powers of attorney that name their adult children as the alternate(s) executor or agent under the power of attorney. Or, if the person has lost their spouse or divorced, then to name their adult children as their primary executor and decision maker under their powers of attorney.

Making Your Estate Easier for Your Children

As already mentioned, most couples create their first estate plan when they are expecting their first child or their children are young. At this stage of life, our planning focus is often on creating a good plan to ensure that if both parents die the children are cared for by the appropriate person(s) and the children’s financial future is handled by the appropriate person(s). However, at retirement age our clients have often dealt with a parents’ estate and begin thinking of how they can make their estate quicker or easier to manage for their children. This typically means setting up our client’s estate so that it passes separate from probate. The most common way to avoid probate is to set up a trust rather than a will. A properly drafted and funded revocable living trust eliminates the need for court involvement and greatly reduces the time and money required to settle the estate. You can also set assets up to pass separately from probate by designating payable on death beneficiaries, adding joint owners to accounts, and/or changing the wording on deeds to real property.

Planning for Costs of Care

At retirement age, our clients often begin considering how they will pay for care in the future if the need arises. If not met by family members, our clients’ care needs are most often met by private care in the home, an assisted-living community, or a skilled-nursing facility. Unfortunately, all of these options are extremely expensive and rarely covered by traditional insurance. These options are usually covered by long-term care insurance. Though often prohibitively expensive, retirement is a great time to at least shop around for long-term care insurance products.

There are also two public benefits that we often help clients qualify for to help pay for care. Medicaid is available in Georgia to help pay for cost of care in a skilled nursing facility. The Aid & Attendance Pension is available to certain veterans or widows of veterans to help pay for cost of care. We most commonly help our clients access Aid & Attendance to help pay for assisted living care or home care. Both of these benefit programs require applicants to have income and assets below certain limits to qualify. Some of our client’s create irrevocable trusts and fund them with their assets so that they can qualify for one or both of these benefits in the future. Retirement age is a good time to discuss and consider these types of trusts as part of your estate plan.

Retirement Accounts

Retirement accounts like IRA’s or 401k’s require separate considerations as part of your estate plan. These assets are funded with pre-tax dollars. You have never paid income taxes on the balance in those accounts. You will pay income taxes on that money as you withdraw from your account or your estate or named beneficiaries will pay income taxes on it in the future. It will almost always make sense to name specific beneficiaries for your retirement accounts. Your named beneficiary will have preferential tax rules for their inherited retirement accounts compared to your estate if your account doesn’t have a named beneficiary.

The SECURE Act became a law on January 1, 2020. This law made substantial changes to how inherited retirement accounts are taxed. Most notably, with certain exemptions, it reduced the timeline over which non-spouse beneficiaries are required to take distributions from retirement accounts from the beneficiary’s remaining life expectancy to ten years. If you haven’t considered the tax implications of your retirement accounts passing to your children or haven’t reconsidered them under the new rules, now is a good time to talk with us about this issue.