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Tax Season is the Perfect Time to Review Your Estate Planning Documents

As April 15th approaches, many people are putting together their income tax returns and reviewing their personal and business finances. This is an excellent time to include a review and update of your estate planning documents, to make sure that all assets are included along with any family member changes. With careful planning, both current and future tax liabilities may be reduced, as well as protecting assets for your heirs.

What Are the Related Areas of Tax and Estate Planning?

There are few areas where both tax planning and estate planning need to be considered together.  How assets are held, transferred and valued all have an impact on taxability.

Lifetime Gifts:  You may make gifts during your lifetime up to $14,000 per year, for as many people as you like, without incurring gift taxes.  This can help to reduce your estate value as well to minimize taxes.

Business Succession Planning:  For closely-held companies and family businesses, succession planning is an essential part of the estate plan.  Any changes in ownership or potential successors will require an update to your will or trust.

Life Insurance:  Life insurance is naturally a part of estate planning, and in many cases, can be used to “fund” a living trust to make it valid.

IRAs and Pensions:  Many people view IRAs and other retirement plans as being tax-beneficial, but if those are distributed in an estate plan to heirs they may be taxed at a rate of up to 40%.  There are methods to minimize those taxes, but it requires pre-planning.

Social Security: If you are approaching retirement age, when you choose to begin receiving social security will affect the amount of the monthly payments.  Payments are subject to income tax, affecting other choices about retirement fund withdrawals.
Tax Season Planning List

Here is a quick list of the documents and financial information to review during tax season:

  • Will or living trust, especially if there are changes in asset inclusion or distribution
  • Retirement accounts and planned elections on when to begin withdrawals
  • Social security payments, and when to elect the time to begin payments
  • Business succession plans and ownership agreements
  • Life insurance policies and beneficiary choices
  • Charitable gifts

Written by Andrea Shoup

Shoup Legal, A Professional Law Corporation can be reached at (951) 445-4114.

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