When estate planning, don’t forget to consider the tax considerations. Do not transfer assets with gains from an older generation to a younger generation without tax and step-up basis considerations. These rules vary from state to state and can be very complex to decipher. This is yet another reason why working with an advisor who has the resources to offer guidance on this area of planning is important.
If you receive assets from a deceased person’s estate, then proper use of the step-up in basis can help eliminate your federal income taxes when you sell an asset you were left. It does not apply to inherited retirement accounts or annuities. Depending on whether you live in a common law state or a community property law state, the step up in basis rules are different. Be sure to know which rules apply to you in order to maximize your benefit while minimizing taxes.
You may want to consider using an irrevocable life insurance trust (ILIT) if you have a taxable estate. Life insurance trusts give you power over your insurance policies and the money that is disbursed from them. Life insurance trusts can help you to reduce estate taxes and provide liquidity to the next generation. With a taxable estate, it is important to make sure an attorney has reviewed your trust and taken advantage of the opportunity to double the amount exempt from this tax through the credit shelter or A/B trust provision.
Proper estate planning is an important piece in your retirement strategy. We can help you create and update your plan as needed. Come speak to us about your legacy goals and your overall retirement plans.
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Fixed index annuities are designed to meet long-term needs for retirement income. Early withdrawals may result in loss of principal and credited interest due to surrender charges. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, an additional 10% federal tax. An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal Benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional cost. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities. All contract gains beyond the CAP rate are surrendered to the insurance company to pay for the expense of the product.
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