Little-Known Estate Planning Tips Straight from the Pros
As a Certified Public Accountant (CPA), I’ve had the privilege of working closely with clients on their estate planning. While many people are aware of the basics—such as creating a will or setting up a trust—there are lesser-known strategies that can significantly impact your financial legacy. Let’s dive into these expert tips:
1. The Power of a Letter of Instruction
While a will outlines the distribution of your assets, a Letter of Instruction provides additional guidance. It’s an informal document where you can express your wishes, share personal stories, and offer practical advice to your heirs. Consider including details like:
Digital Assets: Specify how you want your digital accounts (emails, social media, etc.) handled after your passing.
Sentimental Items: Describe who should receive family heirlooms, sentimental jewelry, or cherished artwork.
Funeral Preferences: Share your preferences for funeral arrangements, burial, or cremation.
Remember, a Letter of Instruction isn’t legally binding, but it provides essential context for your loved ones during an emotional time.
2. The “Stretch IRA” Strategy
The Stretch IRA is a powerful way to extend the tax-deferred growth of an inherited IRA. Here’s how it works:
When you leave an IRA to a non-spouse beneficiary (like your children), they can “stretch” the required minimum distributions (RMDs) over their life expectancy.
This minimizes the tax impact and allows the IRA to continue growing tax-deferred for decades.
Consult with your CPA or financial advisor to set up beneficiary designations correctly and maximize the Stretch IRA strategy.
3. The ABLE Account for Special Needs Planning
If you have a loved one with disabilities, consider an ABLE (Achieving a Better Life Experience) account. It’s a tax-advantaged savings account specifically designed for individuals with disabilities. Here’s why it’s valuable:
Tax-Free Growth: Contributions grow tax-free, and withdrawals are tax-free if used for qualified disability expenses (education, housing, transportation, etc.).
Medicaid and SSI Protection: ABLE accounts don’t affect eligibility for Medicaid or Supplemental Security Income (SSI).
As a CPA, I recommend exploring ABLE accounts as part of your comprehensive estate plan.
4. The Charitable Remainder Trust (CRT)
A Charitable Remainder Trust allows you to support a charity while retaining income from the trust during your lifetime. Here’s how it works:
You transfer assets (cash, securities, real estate) into the trust.
You receive income (usually fixed or a percentage) from the trust for life.
After your passing, the remaining assets go to the designated charity.
CRTs offer tax benefits, including an immediate charitable deduction and potential capital gains tax avoidance.
5. Regularly Review and Update Your Plan
Life changes—marriages, births, deaths, and financial shifts. Regularly review your estate plan to ensure it reflects your current wishes. Don’t forget to update beneficiary designations on retirement accounts, life insurance policies, and other assets.
Remember, estate planning isn’t just about money; it’s about leaving a meaningful legacy. Consult with a qualified CPA or estate planning attorney to implement these strategies effectively.
These lesser-known estate planning tips can make a significant difference in securing your financial legacy. As a CPA, I encourage you to explore these strategies and tailor them to your unique situation. If you have questions or need personalized advice, reach out to a professional who specializes in estate planning. 🌟💼