I would like to leave a legacy for my heirs; however, I won’t have a multi-million dollar estate.  Could one of your Estate Planning Attorneys provide me with a suggestion?

Answer:  Most people do not believe that they can leave a legacy for their heirs because the word is usually tied to large, multi-million dollar estates. However, there are ways to leave a legacy that does not involve complicated estate planning tools or extreme amounts of wealth. Two simple moves can be made with the money that you have now that can help you leave a legacy for your family, friends, or charitable organizations.

Moving Money to a Roth IRA

If you have assets in a traditional IRA that you do not think that you will deplete in your lifetime, consider converting those funds to a Roth IRA. High income earners are often prevented from contributing to a Roth IRA, but anyone can convert a traditional IRA to a Roth. After the conversion of the traditional to the Roth, when the Roth IRA is held for five and a half years and you have reached the age of 59 ½ years old all of the distributions are tax-free.

In addition, the Roth IRA comes with the additional benefit of no required minimum distributions when you reach 70 ½ years old, unlike the requirement for traditional IRAs. As a result, you can let the money in the Roth IRA accumulate over the course of your lifetime, as opposed to having the required minimum distributions decrease the overall amount in the fund.

Re-characterization rules for traditional and Roth IRAs also help make the shift from one type of account to another. The Internal Revenue Service (IRS) gives you until October 15 of the year following the conversion of a traditional IRA to a Roth to re-characterize it back to the traditional IRA if you lose significant value from the shift. The account can be re-characterized again into a Roth IRA in the next tax year after the initial conversion or thirty days after the re-characterization, whichever is later.

Moving Money to a College Fund

If you would like to help fund your grandchildren’s education, you can consider moving money into a 529 college savings plan. Earnings in a 529 plan compound tax-deferred and the distributions are tax-free, as long as they are used for qualified educational expenses. However, a 529 plan also gives an added benefit to the grandparents that hope to leave a legacy for their loved ones.

A special accelerated gifting provision for 529 plans allows for grandparents to fund their grandchildren’s college while also reducing the size of their own estates. Typically, the annual gift limit is $14,000 per beneficiary or $28,000 if you are married. However, the 529 plan exemption allows for up to five years of $70,000 per year or $140,000 for a couple per grandchild.

A 529 college savings plan is a great alternative to an irrevocable trust for tax purposes. In addition, this type of plan has relatively low administrative fees compared to a typical trust. Finally, a 529 plan gives the donor a surprising amount of control over the funds in the plan. You can control how the money is invested and who will receive the distributions. In addition, you can change beneficiaries or cash out the 529 plan if you decide to change your mind about the fund.

Michael Ettinger, Esq.
Ettinger Law Firm
Albany, New York

Leaving a Legacy Behind: Planning for Modest Estates was last modified: June 28th, 2018 by Phil Sanders