The Beneficiary's Role in an Estate Plan
duda • Sep 13, 2023
The term "beneficiary" comes up frequently during the process of estate planning because the efforts of estate planning are focused on transferring the decedent's assets to the beneficiary. A beneficiary is anyone who gains an advantage or profits from something. In the context of a will, or a trust, or administration proceedings, the beneficiary is someone who is eligible to receive distributions from a will or a trust, or otherwise from the decedent's estate; however, the beneficiary can also be the person who is named in a life insurance policy, a retirement plan, or other contract who is intended to receive the distribution specified in the policy.
Usually any person or entity can be named as a beneficiary to a will, or a trust, or a life insurance policy. Also, the one distributing those funds (the benefactor) has the right to place various stipulations on how those funds are to be disbursed. For example, the benefactor can require that the beneficiary be married, or completes college, or reaches a certain age before receiving the funds. There can also be tax consequences for the beneficiary. To illustrate, while the principal on most life insurance policies is not taxed, the accrued interest may be subject to taxes.
In most cases the benefactor will designate beneficiaries who are to receive the benefactor's assets after they pass away. However, if a beneficiary is not alive or if they don't qualify under the restrictions set forth, the assets will normally pass to what are called contingent beneficiaries. There are some types of accounts that don't allow restrictions beyond death of the primary beneficiaries; however, a trust in particular can allow for a variety of restrictions providing they are not illegal or made for an illegal purpose.
At Pederson Law Offices, our Thousand Oaks estate planning attorneys can explain how the different estate planning tools are used to achieve a variety of goals. Whether you wish to bequeath your assets through a will, or if you have a child who is irresponsible with money and you're afraid that a windfall would be a disaster, there are ways to structure your estate plan so that your concerns are adequately addressed. We understand how no two clients' situations are identical and we are therefore here to provide you with a personalized and tailored estate plan that meets your goals and expectations, whatever they may be.
If you have any questions or are interested in creating an estate plan of your own, we encourage you to contact us today at (805) 372-1507.
With an array of updates and changes to tax regulations, 10x Business Consultants is here to ensure that your tax filing process is as seamless and straightforward as possible. We've compiled an essential guide addressing the pivotal questions you may have about the 2023 tax year, alongside vital information to ease your tax journey this year. Key Updates for the 2023 Tax Year This tax season introduces several changes, including an increased standard deduction, adjustments to tax brackets, and a continuation of the delay for taxpayers using third-party payment platforms like Venmo and PayPal. Here’s what you need to know: General Tax Questions Tax Filing Deadline : Mark your calendars for Monday, April 15, 2024, as the official deadline to file your taxes. 2023 Marginal Tax Rates : These rates have been updated across various filing statuses, including Single Filer, Married Filing Jointly, Head of Household, and Married Filing Separately. Understanding Tax Brackets : Your effective tax rate, influenced by your income's specific tax brackets and any claimed tax credits, often results in a lower rate than the marginal tax rate. Standard Deduction Increases : For 2023, the standard deduction has risen, providing taxpayers with more non-taxable income. Itemizing vs. Standard Deduction : With the majority of taxpayers opting for the standard deduction, it's crucial to assess which option maximizes your tax benefits. Tax Credits to Consider : From the Child Tax Credit to the American Opportunity Credit, numerous tax credits are available to reduce your tax liability. Student Loan Interest Deduction : Eligibility for a deduction on student loan interest payments resumes following a pandemic-induced pause. Retirement Tax Questions Contribution Limits : The 2023 limits for contributions to retirement plans like 401(k)s, IRAs, and others have been updated. Required Minimum Distributions (RMDs) : Important changes and deadlines apply based on your birth year. Tax Breaks for Seniors and Retirees : Various deductions and credits are available, including those for Medicare premiums and charitable contributions. Miscellaneous Tax Deductions Estate and Gift Tax Exemptions : Significant increases to the lifetime estate exemption and annual gift tax exclusion for 2023. Capital Gain Rates : Tax rates on long-term capital gains continue to be favorable for those in lower income brackets. Energy-Efficient Upgrades : Reinstated tax credits for home improvements and energy efficiency can lead to substantial savings. Digital Platforms and Electric Vehicles Third-Party Payment Platforms : The IRS has postponed changes to the reporting threshold for platforms like PayPal and Venmo until the 2024 tax season. Electric Vehicle Tax Credits : Significant credits are available for those who purchased new or used electric vehicles in 2023. Tailored Tax Solutions While online tax platforms offer convenience, individuals with complex financial situations may benefit from personalized guidance. Whether you're self-employed, navigating a recent life change, or managing multiple income sources, partnering with a local tax professional ensures that your unique needs are addressed with expert care. Moving Forward We hope this guide serves as a valuable resource as you prepare for your 2023 tax return. Should you have any questions or wish to schedule a consultation, 10x Business Consultants is here to assist. Remember, informed decisions today can lead to a smoother tax season and potentially significant savings. Share this guide with friends and family who may benefit, and let's tackle this tax season with confidence and clarity.
Are you one of millions who setup your revocable living trust years ago and thought you were done? No question that a Revocable Living Trust (RLT) is a great, relatively simple, and effective estate planning tool. In fact, it is the core component of most estate plans. However, a RLT requires periodic review to ensure that it accurately addresses your family’s current circumstances and your ever changing goals. The following is a simple list of questions you should ask yourself on an annual basis to determine if your current plan is appropriate: Have there been any births, deaths, illnesses, or accidents in your family which would impact your distribution plan? Are your named beneficiaries competent and mature enough to receive the distributions pursuant to your current plan? Are any of your beneficiaries or heirs receiving or likely to receive any public assistance due to a disability? If so, please consider the appropriateness of a Special Needs Trust to protect that individual. Are the successor Trustees of your Trust and Executors of your Will all in good health and competent to serve in those capacities? Have all of your assets been changed to the name of the Trust and are your Schedules of Assets up to date? Specifically, have you purchased any new property or refinanced any old property, and have deeds been prepared to transfer that property into the name of the Trust? Has the size of your estate changed due to an inheritance, a new life insurance policy, or an increase in the value of investments, etc.? Are the attorneys in fact and health care agents for your Durable Powers of attorney in good health and still competent to serve in those capacities, or have those Powers of Attorney expired? If you have significant assets in tax-deferred or tax-free accounts such as 401k’s, IRA’s, Roth IRA’s, etc., do you understand your options regarding beneficiary designations, and how those designations will impact the estate and income tax planning aspects of your trust? New techniques are available to further protect these types of assets, without compromising the tax benefits associated with these tax-deferred or tax-free accounts. Additionally, you should also review your estate plan whenever a major change in the law occurs. At a minimum, we recommend that you sit down with your estate planning attorney to review your trust at least once every three years.
Life Insurance can be a wonderful estate planning tool when properly utilized. Not only does it provide income replacement in case of premature death, but it also provides liquidity in estates that may face significant Federal Estate Taxes. You may have been told by your insurance broker that life insurance is “tax free” to your heirs/beneficiaries. Not so fast…let’s clarify what is meant by “tax-free.” While the beneficiaries of a life insurance death benefit will typically receive that benefit free of any income tax, the total value of the death benefit will typically be included in the estate of the deceased individual for purposes of calculating Federal Estate Taxes. Remember, Estate Tax rates have fluctuated between 35 to 55 percent over the last decade. The estate tax exemption has fluctuated between $1 million and $5 million since 2001. This occurs because as the owner of the policy, the deceased individual held the power to direct where the death benefit would be paid. Thus, the IRS considers the full value of the death benefit subject to Federal Estate Taxation. To avoid Federal Estate Taxation on life insurance, you must simply avoid being the owner of the policy. The I rrevocable L ife I nsurance T rust (ILIT) is a simple and effective way to transfer life insurance proceeds “Estate and Income Tax Free” to your beneficiaries.