By: Kathleen A. Brost, Trust and Financial Advisor, Legacy Private Trust Company
January is a great time to take stock of where you currently are from a financial, tax, and estate plan perspective. With the new tax reform bill officially signed into law, this is especially good advice this year. Here are five things to do in the next few months:
1. Assess the impact of the new tax reform law on your 2018 income taxes.
Most of the provisions of the new law will begin to affect everyone’s income taxes in 2018. Overall federal income tax rates will be lower for 2018, but many deductions and income tax credits are reduced or eliminated. The IRS is scheduled to come out with new income tax withholding tables in February which are designed to take into consideration the new income tax rates and standard deduction, although the new withholding tables do not necessarily take into consideration taxpayers who itemize deductions. Therefore, when you sit down with your tax preparer to do your 2017 income tax return, be sure to also review your current income and tax deductions. Ask him or her to analyze what amount of income tax you should withhold in 2018, not only on your wages
and estimated tax withholding payments, but also on distributions from your IRAs and 401ks. Look at which deductions and income tax credits you currently take and review the effect of the new tax law on those alongside your overall income tax scenario. With a better understanding of how the new tax law affects your personal tax scenario, you may have less of a surprise when you file your income tax returns in April 2019.
2. Assess the impact of new tax reform law on your estate and financial plan.
The new tax reform law increased the federal estate and gift tax exemptions to $11.2 million per person while retaining the ability to use any unused estate tax exemption for the surviving spouse’s estate. If you haven’t looked at your estate plan lately, now is the time to sit down with your attorney and review your estate plan to make sure it is up to date. Even though these new exemption increases are temporary, you may find that your estate plan has provisions that do not coincide with current law or no longer reflect your wishes. Generally, you should review your estate plan
every three to five years or when you have experienced a major life event in your family (divorce, death, birth of a child, retirement, etc.). Because of the tax law changes, 2018 is an ideal year to review these provisions.
3. Consider creating a financial plan.
Remember that the estate tax exemption applies to the value of your estate upon your death—which hopefully is many years from now—not the value of your estate today. If you are unsure of the probable value of your estate years down the road, ask your relationship manager about creating a financial plan. Developing a financial plan can help you meet both your financial and life goals (funding for retirement or college expenses, valuations for estate tax planning, funding for long term care, and charitable funding, etc.). Since financial planning begins by looking at your current financial situation, spring is an ideal time because you receive annual reports and valuations on most of your assets in the first couple of months of the year. Financial planning is one of the services that Legacy offers its clients.
4. Review and update your financial and health power of attorney (POA) documents.
Make sure that both your financial and health power of attorney documents reflect your wishes and your assets. Confirm that the agents you listed are still the people you want to act on your behalf. Be sure to give a copy to your POA, or that your POA knows where to find them.
5. Review and update your beneficiary designations on your life insurance, IRAs, and 401k plans.
Your beneficiary designations, not your will or trust, will govern how your life insurance, IRA, and 401k plans will be distributed. Therefore, it’s important that your beneficiary designations are up to date and reflect your wishes. Be sure to list a primary and contingent beneficiary on these accounts and a provision to handle beneficiaries who are minors (under the age of majority). Your beneficiary designations should work in conjunction with your overall estate plan, therefore when you review your estate plan, it is an opportune time to review your beneficiary designations, too. Also be sure to keep copies of your beneficiary designations with your estate planning documents (will, trust, marital property agreement, financial power of attorney, and health care power of attorney documents).
Laurene Brooks joined Legacy in 2004, shortly after the company’s inception. She earned undergraduate degrees in journalism and Spanish, and her Juris Doctor (JD) designation from Marquette University. Laurene has over 30 years of experience in law and relationship management. In addition to assisting clients with financial management and estate planning, Laurene is Legacy’s senior fiduciary officer. In addition, she was a member of the Real Property, Probate, and Trust Division of the Wisconsin State Bar for 10 years and served as chair.
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