I always enjoy it when readers reply to these emails, and last week was particularly gratifying because several people said something along the lines of, “I’ve been meaning to do this for a while, and I’m going to call my lawyer this week and get it updated.” That’s great!
I also heard from one of my favorite estate lawyers, Tim Yeaglin, the Co-Chair of Lewis Rice’s Estate Planning and Probate Department, who made a few excellent suggestions. That’s why I’m calling this email Part 1.5. Part 2.0 will cover the individuals involved in your estate plan, which will be discussed next week.
First, he rightly pointed out that the current estate tax exemption is $13.99 million per person; I used 2024’s number. That probably doesn’t change things for most readers, but it will matter to some!
Second, he noted that people with outdated estate plans may encounter capital gains taxes that could be avoided with current documents. This may be a bit too deep in the weeds, but documents drafted before 2011 may rely too heavily on bypass trusts to avoid the estate tax, potentially missing the opportunity to step up the cost basis on appreciated assets when the second spouse in a marriage passes away.
Third, and perhaps more timely, is that the SECURE Act changed the way that non-spouse beneficiaries inherit IRAs. Previously, if a child, for instance, received an IRA outright (or in a properly drafted trust), he or she could stretch out the retirement plan over his or her lifetime, possibly taking only required minimum distributions along the way. Since the passage of the SECURE Act, non-spouse beneficiaries can only stretch distributions over ten years. After ten years, the assets will be fully taxable to the beneficiary and no longer qualify for tax-free growth.
As you can see, the legislation dramatically weakened the tax benefits of an inherited IRA. Furthermore, prior documents drafted to ensure a trust qualified for the same lifetime stretch may not be compatible with the new rule. In a worst-case scenario, if the trust language does not align with the new law, the beneficiary would need to withdraw the assets from the inherited retirement plan within five years, not 10.
Lastly, he suggested that I point out the confusion many people have about Do Not Resuscitate (DNR) orders, which typically aren’t part of a healthcare directive. A DNR is a document that tells healthcare providers not to perform certain lifesaving measures. These are generally signed in the hospital by the healthcare agent named in a power of attorney, but they can also be found online (for instance, the Missouri Department of Health and Senior Services has a downloadable PDF file of an “Outside the Hospital Do Not Resuscitate Order”).
People should consider whether or not it makes sense to be resuscitated before signing one of these. If you do sign one, you should provide it to your healthcare provider and consider keeping a note about it in your wallet or on your smartphone to increase the chances it will be honored in an emergency (no word on a chest tattoo reading DNR).
All of his points were a perfect example of why you need to talk to a seasoned estate lawyer licensed in your state. And saying that I’m not a lawyer isn’t just to satisfy our compliance officer – it’s the truth!
I was going to say that I don’t even play an estate lawyer on TV, but I realized that I can’t think of well-known estate lawyers on TV. Sometimes you see one at a dramatic will reading, but that’s about it, and it’s unfortunate, given the subject matter’s importance.
