Illinois Estate Planning and Elder Law Blog

An important new federal law went into effect January 1, 2020 called the SECURE Act (Setting Every Community Up For Retirement Enhancement). This law will change retirement savings and estate planning options for many people. Here are a few of the changes this act puts into place that may have the greatest impact on you and your estate plan.

The SECURE Act raises the age at which individuals must begin taking required minimum distributions from their IRA, 401K, 403B, and other qualified funds from age 70 ½ up to age 72 (an exception being if you turned 70 ½ prior to Dec. 31, 2019, in which case the new rule does not apply to you and you will need to start taking distributions by April 2020 or face penalties). The new law also does away with the 70 ½ age cap on contributing to an IRA. Now you can contribute income to an IRA no matter your age.

The most significant impact the SECURE Act has on estate planning concerns the IRA Stretchout. Before this act, individuals who did not need their IRA money could pass the IRA to non-spouse beneficiaries who could then “stretch out” withdrawals based on their life expectancies. Clients could use this to create a lifetime income stream for their children. However, this can no longer be done under the new law. Instead, non-spouse beneficiaries have to withdraw all funds from an inherited qualified plan within 10 years of the death of the original owner (although there are a few exceptions, such as if the non-spouse beneficiary is disabled.) There doesn’t need to be a set withdrawal schedule – the account just has to be depleted within 10 years. Those most impacted by the income tax consequences will be non-spouse beneficiaries in their peak earning years.

Maggie Kirchhoff, a certified financial planner with Business & Personal Finance in Denver, has been with her partner, Matt, for 13 years. The two do not plan to ever get married, and they know this means they won’t get the same automatic rights and protections that those who are legally married get, especially when it comes to death.

“A lot of spousal rights are inherent with a marriage certificate,” says Kirchhoff. “For unmarried couples, though, you have to make a concerted effort to cover all your bases.”

The number of unmarried couples who live together was at 18 million in 2016, up 29% from 14 million in 2007, according to the Pew Research Center. Among those age 50 and older, this increase was 75%: About 4 million were cohabiting in 2016, up from 2.3 million in 2007.

For most Americans, estate planning can be complex and daunting. It might seem overwhelming and expensive, and it isn’t easy to confront one’s mortality and make the necessary decisions for it. Nevertheless, it is essential that every American have one important estate planning document: A Health Care Directive.

A health care directive is a legal document which specifies the decisions for caregivers in the event of illness or dementia as well as giving directions for end of life decisions, including how the body should be handled after death. They are sometimes also called living wills, durable health care powers of attorney, or medical directives.

The Impact of Estate Planning

You know you need to create a will, but you keep putting it off – it’s difficult to think about dying and about who will take care of your family after you have passed away. But if you’ve only scribbled some notes or considered which lawyer to hire, you risk dying “intestate” — without a will that could guide your loved ones and would likely save them both from family fights and from losing money.

Financial planners say getting people to stop procrastinating on estate planning can be tough. Here is advice from several of them offering their best strategies for helping clients to get this done.

Remember whom you’re doing it for

Oftentimes, federal workers and retirees don’t bother with estate planning and think that getting a will off the internet and getting it notarized is all they need to do. However, this isn’t necessarily enough. If you are or were a career civil servant, own a house, have money in your TSP account, bank, or investments, you probably have an estate (you almost certainly do if these are true and you are also still married to your first spouse).

So what next?

A will is a very important part of an estate plan, but it is certainly not a complete estate plan on its own.

Many people know of the stories of well known celebrities, such as Prince and Aretha Franklin, who died without a proper estate plan in place. We want to plan for a good life and retirement, but it is important to also plan for a good end of life. Here are four ways you can refine your estate plan and take steps to protect your assets and prevent unneeded stress and uncertainty for your loved ones.

1. Review Beneficiary Designations

Many accounts can pass to heirs and loved ones without having to go through the process of probate. Life insurance contracts, 401(k)s, and IRAs can be transferred through beneficiary designations, so you get to decide who you want to inherit your accounts by filing out a beneficiary form. Oftentimes you can use these forms to name successors or backup beneficiaries and even split up accounts by dollar amount or percentages between beneficiaries.

Let’s say your oldest daughter is a strong-willed and successful accountant, and your son is a high school teacher who is good at managing money and being the family’s peacekeeper. You’re almost done with your estate planning but unsure about which of your children to choose to be the executor of your estate, and you don’t want to cause ill will between them.

Before you decide who to choose, consider the following advice when it comes to choosing an executor:

Success often means nothing. Just because someone is a financial professional, even an accountant, doesn’t mean that person will be a great executor of your estate – like in cases of a good doctor being a difficult patient or good lawyers being unsuited to represent themselves. People can be great at their jobs and careers but then be terrible when it comes to managing their and your personal affairs.

People often have more digital assets than they realize. What happens to these assets when a person dies?

Until recently, every individual site has had its own terms of service that determined who has ownership and access after a death and whether the assets are deleted, frozen or can be transferred. This has meant a hodgepodge of rules for survivors to need to sort through, and family members are often shocked to find they have no control at all. Irreplaceable images, photos, and history are often lost, as well as items of financial value.

However, almost every U.S. state has now passed the Revised Uniform Fiduciary Access to Digital Assets Act, or RUFADAA, and experts are gaining a better understanding of how this law helps their clients determine what happens to their digital assets after they die.