Women with over $20 million in networth should be making gifts and transferring assets now. Not only is the gifttax lifetime exemption at an all-timehigh of $11.7 million, but if no additionallegislation passes, that high-water markreverts to $5 million on Jan. 1, 2026.Furthermore, it’s expected that under aBiden tax plan, the lifetime exemptionwill be reduced to only $3.5 million.
In addition, as real estate asset pricesin some areas of the country have takena substantial plunge, it has created aunique opportunity to transfer wealth tothe next generation without triggering asteep tax.
COVID- 19 has been the ultimate lesson in “expecting the unexpected.” Oneunexpected impact of the pandemic wasthe pause in surrogate courts. Even families that had a plan in place and werefaced with an unexpected death hadassets locked up for months while waiting for an executor to be appointed.
In some cases, surviving spouses
(mostly women) had no way to pay
their bills, let alone begin transferring
assets. To prevent this hardship situ-
ation, all HNW families should have a
revocable trust in place, which allows
the trustee to step into the decedent’s
shoes and start managing the assets
right away, independent of waiting for
Though difficult to face, death anddivorce are events that everyone mustplan for, especially women. An electionor even a pandemic might make onenotice that they should be planning, butby then, it is usually too late.
Mela Garber, a certified divorce financial analyst, is tax leader of Anchin Private Client andits Trust & Estates and Matrimonial AdvisoryGroups. Anchin, an accounting and advisoryfirm founded in 1923, focuses on privately heldbusinesses and high-net-worth clients.
4 Facts Retirees Need to Know for 2021
Vanguard’s head of Wealth Planning Research, Maria Bruno,recently spoke with Christine Benz, Morningstar’s directorof personal finance, about what retirees — and advisors —should watch for in 2021. Here are four of Bruno’s suggestions:
1. RMDs are back and must be taken yearly. Due to the pandemic, required minimum distributions — the purpose whichis to spread out a retiree’s savings over an expected lifetime —were waived in 2020.
Also, the age level was raised (due to the SECURE Act), so for
those who turn 72 this year have until April 1, 2022 to take their
RMD. Those older than 72 must take their RMDs by Dec. 31.
Bruno cautions that the cost of not taking the distribution is
significant: a 50% excise tax for the amount that should have
Therefore if a retiree is mandated to take a distribution —
“and again the distributions are from traditional IRAs, 401(k)s
and Roth 401(k)s, although they are not taxed,” they are man-
dated to take withdrawals on an annual basis, Bruno told Benz.
2. Start thinking about withdrawal strategies before the
RMD age. Bruno says that retirees should think about RMDs
as an “asset pool.”
Plus, pre-72- year-olds who are withdrawing from IRAs and
401(k)s should consider this, she explains: “If [retirees] have
flexibility in having taxable assets or tax-deferred or Roth
assets, [they] can be surgical on a year-by-year basis to think
about: How can I minimize both the liability this year, but
then also what I might be looking at in the future?”
She adds that “a lot of individuals are sitting on large
tax-deferred balances, and while there is a benefit to not
touching [those because clients can] continue to enjoy tax-
deferred growth, some individuals, given the size of their IRA
or 401(k), can be subject to pretty large mandated distribu-
tions, which would then come with what they call the ‘tax
torpedo’ — large tax liabilities.”
Potentially leading up to age 72, retirees “could start to
withdraw from those assets,” Bruno explains.
Withdraws from those assets before age 72 may mean ahigher tax rate now, but would reduce the required RMD laterbecause of the smaller amount in the IRA. Another option isconverting some of those assets to Roth IRAs, which are notsubject to lifetime distributions, she said.
3. Taxes matter, so work with a tax or financial professional.This is key because there are strategies about when to starttaking Social Security as well as determining the right “assetpool” to withdraw from that have tax consequences otherthan RMDs.
4. Although the 4% yearly withdrawal rate has been therule, clients should be flexible. She notes that in Vanguard’slong-term forecast, investment “returns are muted.” A projected median return is 4.5% with inflation potentially around2.5% to 3%, Bruno adds.
“That doesn’t mean the 4% rule is dead … just be mindfulin terms of what conditions we’re looking at today and overthe next couple of years; [retirees] might need to be a littlebit mindful in terms of ratcheting back [spending] a bit,” sheexplains. —Ginger Szala