Smart Estate Planning for Iowa Retirees

Effective estate planning is an essential part of your end-of-life plan and shouldn’t be ignored. Not having an estate plan can lead to confusion about your wishes, as well as emotional stress for your family.

As retirees in Iowa embark on the next chapter of their lives, planning for the future is essential. More than 1 out of 4 Americans say inflation has caused them to see a greater need for estate planning, yet 2 out of 3 Americans do not have any type of estate planning document in place.

Whether you have significant wealth or modest assets, creating an estate plan can help provide peace of mind and help to fulfill your wishes. This blog will examine the critical elements of intelligent estate planning for Iowa retirees. Here’s what you should know.

Why You Should Have An Estate Plan

Estate planning is one of the most important things you can do for yourself and your family. It helps you proactively manage your financial assets and healthcare decisions during your lifetime, and after passing.

Estate planning involves creating various legal documents, such as wills, trusts, and powers of attorney, which help determine the distribution of your assets. Think estate planning is only for the uber-rich? Anything you own is considered an asset. Your car, jewelry, home and even your family heirlooms are considered assets. So essentially, estate planning is for everyone.

Planning for when you’re no longer here also offers peace of mind and helps facilitate a smooth and efficient transfer of wealth. By taking control of your affairs, you can help to leave a lasting impact that aligns with your values and protects your family’s future. Let’s take a deeper look at what you can expect.

Will and Trust

A will is a legal document specifying how a person’s assets and belongings should be distributed after death. Wills are the foundation of any estate plan. Consequently, retirees should also consider establishing a trust. Trusts offer additional benefits such as privacy, probate avoidance, and asset distribution flexibility. Several types of trusts are commonly used for various purposes. Here are some of the most common:

  • Revocable Living Trust: A living trust is created during the grantor’s lifetime and can be modified or revoked. It allows the grantor to retain control over the assets placed in the faith and typically becomes irrevocable upon the grantor’s death.
  • Irrevocable Trust: This type of trust cannot be modified or revoked once established, except under specific circumstances. It transfers ownership of assets to the trust, removing them from the grantor’s estate for tax and other purposes.
  • Charitable Trust: This type of trust provides tax advantages to the grantor while supporting philanthropic causes.
  • Dynasty Trust: A dynasty trust aims to provide for multiple generations of beneficiaries by preserving wealth and minimizing estate taxes.
  • Family Trust: A family trust is created to manage and distribute assets within a family, often for estate planning, asset preservation, or tax efficiency purposes.

These are just a few examples of the many types of trusts available. Each trust has its specific purpose and benefits, and it’s essential to consult with your financial advisor to help determine the most appropriate type of trust for your particular situation.

Estate and Gift Taxes

In Iowa, there is an inheritance tax that beneficiaries are responsible for paying on their inherited assets. However, the tax only applies to specific categories of inheritors, and for individuals, two types are relevant:

  • Tax Rate B: This category includes siblings, half-siblings, and children-in-law. The tax rate for this category ranges from 3% to 6%, depending on the size of the inheritance.
  • Tax Rate C: This category encompasses uncles, aunts, nieces, nephews, foster children, cousins, brothers-in-law, sisters-in-law, and others not mentioned in Tax Rate B. The tax rate for this category ranges from 6% to 9%, depending on the size of the inherited assets.

However, it’s important to note that certain relations are exempt from paying inheritance tax when they inherit money from a deceased relative. If your relationship to the deceased person falls within any of these categories, regardless of the size of your inheritance, you will not owe any inheritance tax. Iowa is currently planning to repeal the inheritance tax by the year 2025 completely.

One significant benefit for Iowa retirees is that there is no gift tax. However, it’s important to note that the federal gift tax still applies. For 2023, the federal gift tax allows a per-year exemption of $17,000 for each gift recipient. If you give a single individual more than $17,000 in a single year, reporting that gift to the Internal Revenue Service (IRS) is necessary. Filing requirements apply in such cases to help ensure compliance with federal gift tax regulations.

Proper estate planning can help minimize estate taxes and help ensure your beneficiaries receive the maximum amount of your assets. Consult with a knowledgeable estate planning professional to explore strategies like gifting, charitable giving, and trusts that can help reduce your tax liability.

Healthcare and Financial Powers of Attorney

With the progression of age, many retirees may need to consider long-term care options. Planning for potential long-term care expenses, such as housing, is essential in preserving your estate for future generations. Exploring options like long-term care insurance, Medicaid planning, and the use of irrevocable trusts can help alleviate the financial burden associated with long-term care.

As a retired individual, establishing healthcare and financial powers of attorney is paramount. A healthcare power of attorney allows you to designate someone you trust to make medical decisions on your behalf if you become incapacitated. Similarly, a financial professional such as a Fiduciary helps you appoint someone to manage your financial matters when you cannot do so yourself. It is crucial to select reliable individuals for these roles carefully and clearly define their responsibilities to help ensure your wishes are honored and your best interests are safeguarded.

Taking proactive steps to establish healthcare and financial powers of attorney and planning for long-term care empowers retirees to help them make informed decisions about their well-being and financial security in the face of potential incapacity or care needs.

Regularly Review and Update Your Plan

Estate planning is not a one-time task. Life is constantly changing, and your estate plan should adapt accordingly. Reviewing your plan after significant life events such as deaths, divorces, or changes in financial circumstances is essential. Updating beneficiary designations is another vital aspect of estate planning.

Retirement accounts, life insurance policies, and other assets with designated beneficiaries pass outside the probate process. Ensuring these designations reflect your wishes is essential to help avoid potential conflicts. Take proactive steps to help ensure your assets are titled correctly. Keeping an open line of communication with your Fiduciary is necessary. They can help ensure that your plan remains up-to-date and aligned with your (sometimes evolving) wishes.

Working With an Iowa Fiduciary 

By collaborating with a Fiduciary advisor with experience in estate planning, you can help to effectively identify tax-efficient strategies to help minimize your tax burden and help ensure the distribution of your assets aligns with your needs.

Johnson Wealth and Income Management is a reputable financial advisory firm renowned for its knowledge in estate planning. Our experienced team of Fiduciaries has assisted numerous clients in northern Iowa and southern Minnesota develop comprehensive estate plans that help provide peace of mind for themselves and their families. We offer an array of services to address your estate planning requirements, including:

  • Wealth Management: Our team of fiduciary advisors assists you in managing your assets to help safeguard your wealth by your preferences.
  • Reviewing Your Existing Plan: If you already have an estate plan, we can thoroughly review it to help ensure its relevance and adequacy, considering any life changes. We will identify potential concerns and offer recommendations for improvements.
  • Creating a New Plan: If you still need an estate plan, we can help you establish one. We will collaborate with you to help ascertain your goals and create a customized plan tailored to your estate planning needs.
  • Trusts and Wills: Our team can assist you in establishing essential legal documents such as trusts and wills, helping to ensure the integrity of your estate plan. 

Final Thoughts

Planning for the end of your life can feel stressful and overwhelming. But, when you think about it, your estate plan helps protect your loved ones—mentally, emotionally, and financially. 

The future is uncertain, but with careful planning and guidance from the experienced team at Johnson Wealth and Income Management, you can help ensure that your interests and intentions will be fulfilled. Don’t wait to preserve your assets, family, and hard work with sound estate planning advice.

Contact us today to schedule a consultation.

All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Johnson Wealth & Income Management and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. Investing involves risk. There is always the potential of losing money when you invest in securities. Asset allocation, diversification and rebalancing do not ensure a profit or help protect against loss in declining markets. All information and ideas should be discussed in detail with your individual advisor prior to implementation. The presence of this website, and the material contained within, shall in no way be construed or interpreted as a solicitation or recommendation for the purchase or sale of any security or investment strategy. In addition, the presence of this website should not be interpreted as a solicitation for Investment Advisory Services to any residents of states where otherwise legally permitted to conduct business. Fee-based financial planning and Investment Advisory Services are offered by Sound Income Strategies, LLC, an SEC Registered Investment Advisory firm. Johnson Wealth & Income Management and Sound Income Strategies LLC are not associated entities. Johnson Wealth & Income Management is a franchisee of the Retirement Income Store. The Retirement Income Store and Sound Income Strategies LLC are associated entities. © 2023 Sound Income Strategies.