IRA’s Are No Longer A Good Vehicle For An Estate Plan

IRAs are no longer a good vehicle for an estate plan but life insurance vehicles, with some caveats, are. 

Advisors should move quickly with the new estate planning advice now that the Secure Act has passed. This law, which eliminated the stretch IRA plan for most non spouse beneficiaries and replaced it with a 10-year rule, is already effective for deaths that occurred in 2020.

While this may sound unpleasant and morbid, it is however, vital to discuss. Using life insurance as a vehicle to transfer money could get clients to their estate planning promised land – one with larger inheritances, more post-death control and less tax.

In addition, the guarantee that life insurance offers long term stability and payouts is enough to use this strategy with certainty and simplicity.

It is important to know and add that taking advantage of today’s lower tax rates are only scheduled to remain in effect until 2026. The official estate tax limits for 2020 have been increased to $11.58 million per individual, while a married couple can shield $23.16 million. For the high net worth individuals, these numbers present advantageous planning opportunities.

Now, while the future is uncertain and we have the upcoming election, Democratic presidential hopefuls say that they’ll bring it back to its 2009 level of $3.5 million, with a graduated tax rate up to 77%, compared to today’s flat 40% rate.

In conclusion, using life insurance as a vehicle for an estate plan is a good idea as it focuses on what the client actually wants as far as beneficiary access, protections and distributions. And finally, resolve to plan now, and to plan better. Besides taking advantage of the current tax exemptions, planning better now will protect your hard earned legacy. (Please consult your advisor prior to making any decisions)