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Change in Estate Planning Designation Can Save More Assets

Sept. 13, 2018

The prospect of making final plans for one’s assets and heirs may seem like a daunting task to many New York residents. However, with the guidance of experienced professionals, this chore does not have to be a taxing experience. In fact, with careful wording and deliberate distribution of certain assets, estate planning can ensure that the majority of one’s wishes come to fruition.

According to financial professionals, the average couple tends to make a common error when they set out of formalize their final wishes. An example that was recently shared featured a couple who had saved approximately $1 million in an Individual Retirement Account, owned a home worth approximately $1 million and also maintained a savings account with an after-tax value of another $1 million. In an effort to provide for their heirs and contribute to a charitable organization, they may designate $100,000 of the savings account to be dispersed to a charity and leave the remainder to their chosen heirs.

In this particular situation, this means that the heirs will be responsible for paying taxes on the amount from the IRA. In order to reduce tax penalties, financial professionals advise that funds intended for charities are dispersed out of the IRA rather than through a savings account. By selecting this option, the heirs are entitled to receive all of the other assets as well as the remaining $900,000 out of the IRA.

One advisor stated that this method ensures that the charity receives a maximum donation since it will not pay taxes, and the heirs are shielded from an additional tax burden. The same professional said that this method will not serve the same purpose with other types of retirement accounts. New York residents who are interested in making sure that their heirs receive as much of their inheritance as possible may wish to consult with an experienced estate planning attorney who can help structure their plans in the most cost-effective manner.