7 Estate Planning Tips for Your Retirement

Try these estate planning tips to enhance your financial stability and peace of mind in retirement.

By , Attorney University of Arkansas School of Law
Updated 12/31/2023

As you near retirement, your estate plans may be much different than during other stages of your life. A comprehensive estate plan during your retirement requires you to take stock of your financial needs, ensure that they are met and provide additional safeguards. Some ways to develop this type of plan are discussed below.

1. Purchase Long-Term Care Insurance

Nothing can deplete your estate quite like requiring long-term care in a nursing home or similar facility. With the average cost of a private room in a nursing home over $100,000, it is important to have a plan in place in case you need this type of care. Long-term care insurance can provide for these costs so that the remainder of your estate can remain in place for your other needs or so that you can provide your loved ones with an inheritance. The younger you are when you purchase this insurance, the less expensive it is.

2. Purchase Life Insurance

Many people with young children decide to purchase life insurance to replace their income if they have an untimely death. However, life insurance can also be an effective estate planning strategy later in life. Life insurance can provide beneficiaries with tax-free funds to help offset tax obligations related to inheriting other property. It can also provide replacement income for your spouse, your elderly parents or other individuals who still depend on you for financial support.

3. Maximize Your Retirement Contributions

You can enlarge your estate plan by maximizing your retirement contributions for the next several years. One option to maximize your contributions is to convert your retirement plan assets to a Roth IRA. A traditional IRA is formed with pre-tax dollars. If you convert these funds to a Roth IRA, you will have to pay taxes on the amount converted. However, you may experience several benefits, including:

  • The future withdrawals will not be taxed. This is important if you believe the tax rate will be higher when you make withdrawals than today.
  • The income taxes you pay when you convert funds to a Roth IRA are removed from the value of your estate, which can potentially lower future estate taxes.
  • Withdrawals from a Roth IRA are not included in your modified adjusted gross income and are not considered when any other income is taxable.
  • Roth IRAs are not subject to required minimum distributions, so you can keep growing these accounts as long as you want.

You can also increase the amount of contributions you make to your retirement account. Under tax laws (for 2024), you can contribute up to $7,000 yearly for a traditional or Roth IRA or up to $23,000 in a 401(k) account if you are younger than 50.

When you are 50 or older, you can contribute up to $7,000 in an IRA account, and you can also make catch-up contributions in the following plans:

  • 401(k) (other than a SIMPLE 401(k))
  • 403(b)
  • Governmental 457(b)

With SIMPLE IRAs and SIMPLE 401(k)s, you can make catch-up contributions of up to $3,500 beyond the contribution limit.

4. Consider Your Social Security Options

Social Security benefits can provide some additional needed income during retirement. The amount of benefits you receive are based on your lifetime earnings (or your spouse's earnings if you are claiming based on their record) and the age that you begin receiving benefits. Consider what the potential benefit amount is at different ages and compare this information to your financial situation to determine when the best time to take out benefits will be.

5. Consider Gifting

One way to reduce gift or estate tax is to make annual gifts to beneficiaries. This can provide many advantages, including providing gifts to people during your lifetime, reducing tax liability and avoiding fighting later if your beneficiaries don't agree with how these things would have been left in your will. Under current tax laws, you can gift up to $18,000 per year per person without incurring gift tax liability.

You can also donate funds or other property to charity. More sophisticated options like a charitable remainder unitrust or annuity trust allow you to reduce capital gains taxes while also donating funds to charity.

6. Plan for Disability

A comprehensive estate plan should include provisions in case you become disabled. Several documents you should create include:

Power of Attorney

A power of attorney gives someone the right to act on your behalf regarding your financial affairs. If you get sick or hurt, your agent can step in and take care of your financial affairs. This designation allows you to give control of your money and property to someone you trust.

Living Will

Without an advance health care directive or living will, your loved ones could wind up depleting your estate by insisting on extreme medical measures you would not have asked for if you were able. A living will puts your wishes regarding end-of-life care in writing.

Health Care Proxy

A health care proxy can make medical decisions for you if you can't make them for yourself.

You can prepare these forms with Nolo's Quicken Willmaker & Trust.

7. Set Up a Trust

Sometimes leaving money or other property to a beneficiary in a will may not provide the type of structure you desire. When someone receives a gift through a will, the beneficiary gets to use the property as he or she sees fit. A trust allows you to designate a trustee to manage your property according to the instructions you leave. A trust allows you to instruct your trustee to pay for college education rather than leaving it to your 20-year-old son who might blow it. You can instruct your trustee to pay for your adult children's medical needs or to provide disbursements when they are older, like 30 or 40. You can also instruct your trustee to pay for your medical expenses and insurance payments out of trust funds if you become disabled. Setting up a trust can allow you to avoid expensive legal interventions, such as probate and guardianship or conservatorship proceedings. Additionally, it can restrict disbursements so that your property is used only in the way you intended.

You can craft your own plain-English trust using Nolo's Quicken Willmaker & Trust.

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