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Retirement funds are meant to be used. If you have an IRA or other retirement plan account, you most likely will be subject to required minimum distributions, or RMDs. These distributions ensure that you actually use the funds you accumulate in your defined contribution pension or retirement plan. 

However, they can also make planning your estate more difficult. If you do not account for RMDs in your estate plan, you may leave behind a significantly different estate than anticipated. Below, we discuss when minimum distributions are required, how they are calculated, how they affect your estate, and how to account for them in your plan. 

What Are Required Minimum Distributions?

An RMD is a mandatory payout from an IRA or similar profit-sharing or defined contribution plan. These distributions must begin when you turn 72, if you were born before 1950 or 73 if you were born in 1950 or later. 

You may begin withdrawing from these accounts earlier, but it is not mandatory. Similarly, you may draw more than the minimum once you reach the required minimum distribution age of 72 or 73, but you may not withdraw less.

What is the minimum distribution for a retirement plan? That depends on the plan in question. The IRS provides the Uniform Lifetime Table to help account holders calculate the specific minimum distribution. How is a minimum pension distribution calculated? By comparing the balance in your account at the end of the year against this table. 

Account holders are not the only people who are impacted by RMDs. These plans can be inherited by other parties. If so, the beneficiaries of the account are also subject to RMDs. The IRS provides similar tables for beneficiaries and spouses of account holders.

How Required Minimum Distributions Affect Estate Plans

An RMD can affect your estate plan in several ways. At a minimum, they prevent you from treating the account like any other investment. Instead of continuing to accrue funds indefinitely, your IRA or similar account will start paying out once you reach the age of eligibility. This will increase your liquid assets and reduce the amount available to be passed on to your beneficiaries.

Additionally, your beneficiaries will be required to continue taking RMDs. If this is not accounted for, they may face unwanted tax penalties. As such, accounting for RMDs in your estate plan is crucial.

3 Strategies for Accounting for RMDs in Your Estate Plan

When planning your estate, your best resource is your attorney. They will guide you on the best tactics to achieve your goals if you are required to take RMDs. Strategies they may recommend include:

Consolidate IRAs

Every IRA comes with its own RMD. By consolidating your IRAs into one account, you do not reduce the overall funds you need to withdraw. However, you simplify the process of keeping track of the amount you must withdraw. 

Take In-Kind IRA Distributions

If you don’t want to sell assets in your IRA, you can take an in-kind distribution. This transfers investment assets like stocks from your IRA to a taxable investment account. You are not taxed on the transferred assets, but you will be taxed on the income they generate for you going forward. This allows you to maintain your acquired assets instead of being forced to sell them to achieve your RMD.

Consider Qualified Charitable Distributions

If you want to make charitable contributions, your RMD is an excellent way. You can use your RMD to make qualified charitable distributions (QCDs) and increase your after-tax income. The donated amount is not considered part of your gross income and does count against your RMD. This maximizes your giving power without impacting your gift and estate tax limits.

Account for RMDs With Expert Legal Counsel

Required minimum distributions can complicate your estate plan if not addressed correctly. The best way to ensure your RMDs are accounted for is by working with a skilled estate planning attorney like those at The Dayton Law Firm P.C. Our experienced lawyers are available to help you understand your retirement accounts, their effects on your plan, and the best ways to handle them. Get in touch today to learn more about how we can help you.

Every family has a black sheep or two. They’re people you love but whose behavior doesn’t align with your own beliefs. These family members can make estate planning more difficult, especially if you want to leave them something after you pass. 

There are many ways someone may be a black sheep beneficiary. Maybe they don’t have the best track record of making good financial decisions. Perhaps they struggle with addiction. They may just make lifestyle choices you do not support. 

Many myths about estate plans may cause you to think the only way to protect your assets from these black sheep is by disinheriting them. However, this isn’t true. Despite what you may think, there are ways to include them in your plan while keeping your assets secure from potential poor decisions.

Myths About Estate Planning and Wayward Beneficiaries

If you have not developed an estate plan before, you may believe some common myths about what you can and cannot do regarding the wild child in your family. Luckily, none of the following misconceptions are true:

• You have to split your assets equally. If you have multiple beneficiaries, you can divide your estate among them however you want. That includes leaving liquid assets to a beneficiary whose judgment is sound while leaving a carefully-controlled trust to someone else.
• Disinheriting and other estate decisions are permanent. Unless you set up an irrevocable trust, every decision you make can be changed in the future. You can disinherit or reduce the inheritance of one party while they are young, then reverse the decision down the road if they calm down. 
• You have no control over your assets after you pass. With the proper use of trusts, it is possible to control your property even after you have passed away. Trusts can include a wide variety of terms and conditions that allow you to dictate how the assets are used and distributed in advance.
• Trusts are too complicated. While a trust must be carefully structured to accomplish your goals, they do not have to be complicated to administer. You can easily and effectively set up a self-sustaining trust to account for any black sheep in your family if you form it with skilled legal assistance and designate a professional trustee to manage it.

How to Plan to Protect Your Assets and Your Beneficiaries

With those myths out of the way, you can begin drafting your estate plan with prodigal relatives in mind. Since every family is different, no single strategy will work for everyone dealing with a black sheep. However, the process for developing an effective document remains the same:

• Consider your goals. Do you want to encourage your beneficiary to take certain actions or make better choices? Are you concerned they may waste money if they receive a large lump sum? Do you want to ensure they are supported when you’re gone? Determining your specific goals for your assets and beneficiaries is crucial to selecting the best way to include them in your plan.
• Work with a skilled estate planning lawyer. It is always important to discuss your needs with an attorney before drafting legal documents. However, professional legal counsel is even more necessary if you balance the demands of including a wayward relative in your estate plan. Your attorney will advise you on how to structure your plan to accomplish your goals while providing for your loved ones.
• Revise your plan regularly. Your beneficiary’s behavior may change over time. So may your own opinions and preferences. Routinely reviewing and updating your plan ensures it always reflects your current goals for your estate.

Prepare Your Estate Plan With the Dayton Law Firm, P.C.

Many factors, including your beneficiaries’ behavior, will shape a well-written estate plan. If you are trying to prepare a plan that accounts for the black sheep in your family, reach out to the Dayton Law Firm, P.C. Our skilled lawyers have decades of experience in estate planning for all circumstances. We can advise you on the best way to structure your plan to protect your assets while still supporting all of your loved ones. Learn more about how we can assist you by scheduling your consultation with our California law firm today.

Estate tax exemptions have been high for years, but this may change soon. Current estate tax exemptions only last until the end of 2025, just a few years away. Beginning January 1^st, 2026, the exemptions are scheduled to fall to just $5 million per person, with adjustments for inflation. It is currently predicted that the actual exemption will be approximately $6.08 million per person and $12.16 million per couple at current inflation rates. 

That cuts the exemption amount by more than half, potentially exposing millions of dollars of your assets to the 40% gift and estate tax rate. While the current exemption has been extended before, there is no way to tell whether it will happen again. If your property exceeds the $5 million mark, it’s crucial to prepare for the possible change to tax law now. 

What Are the Current Estate Tax Exemptions?

Currently, a robust exemption exists for both individuals and couples. Individuals’ assets up to $12.92 million are sheltered, while couples benefit from a joint limit of up to $25.84 million. This includes all property in estates, including real property, liquid assets, collections, investment funds, and other things you directly own. 

It is important to note two things about these tax protections. First, this limit is combined with the gift tax limit. Gifts over the annual exclusion per donee are counted against the gift and estate tax limit. In 2023, the annual exclusion is $17,000 per recipient. For example, giving your favorite charity $500,000 or your child a house worth $500,000 counts against the $12.92 million estate limit, reducing it to $12.42 million. However, fifty $10,000 donations to individual charities will not count against that limit.

Second, only property you own is considered subject to an estate tax. If you have already given or sold it to someone else, it is no longer part of your estate. Similarly, if the asset is in a trust, it is not considered your property. Instead, it is the trust’s property, subject to significantly lower tax rates. This makes the careful use of trusts fundamental to protecting assets from taxes.

Preparing for Falling Exemptions in 2026

In California, it is not difficult for established individuals or couples to have estates exceeding the upcoming reduced exemptions. The average California home alone is worth more than $700,000, according to the Zillow Home Values Index. If you own a home and have a solid retirement fund, your assets likely approach or exceed the reduced limit coming in 2026. In that case, you should prepare your estate plan for the possibility of a much-reduced exemption with trusts to protect assets from taxes:

• Special Power of Appointment Trusts (SPATs): Trusts that allow you access to trust assets without being named a trustee or beneficiary. Instead, you are a “trusted person” to whom a party known as an Appointer can instruct the trustee to direct funds. 
• Spousal Lifetime Access Trusts (SLATs): Trusts intended to benefit your spouse and protect them from the taxes on your half of your marital assets should you pass away first. Both you and your spouse can create unique trusts to support each other under the guidance of an experienced estate planning attorney.
• Domestic Asset Protection Trusts (DAPTs): Irrevocable self-settled trusts that name you as a beneficiary and allow you to access the assets within it. They offer unique flexibility among irrevocable trusts but must be carefully managed to follow California laws. Most DAPT trusts rely on professional trustees and estate planning attorneys to accomplish this. 

Do Not Let Changing Tax Regulations Hurt Your Plans

If you have significant assets, you likely want them to go to your family, friends, and preferred organizations rather than being used to pay the 40% estate tax rate. Despite the potential cuts to tax exemptions coming in 2026, you can still protect your assets from these taxes with the right guidance. At The Dayton Law Firm P.C., our skilled attorneys have spent decades helping clients draft plans accounting for tax changes of all kinds. We can advise you on the best strategies and solutions for your unique estate. Learn more about how we can assist you by scheduling a consultation with our California estate planning law firm now.