Imagine that you worked hard for 40 years and built your nest egg to a comfortable amount. You did everything right up to this point. You saved and were careful with your spending. However, as you transition into retirement, you miss a key element of retirement planning. You fail to coordinate your estate documents with your brokerage accounts and life insurance policies.
As time goes on, your assets continue to grow, and you find yourself thinking about your legacy and assume everything will pass according to the instructions in your Will. Your Will has assets going to your spouse, children, grandchildren, and charity. However, your brokerage accounts and life insurance policies have assets going only to your spouse, with no contingent beneficiaries listed. Around the holiday season, you give money to your family and write out checks to charity. You wonder whether you could be giving more during your lifetime, but in the back of your mind, you are concerned about running out of money (even though you have more assets than you have ever had). What mistakes did you make?
Mistake #1: Assuming your Will directs all your assets.
One of the most common estate planning mistakes is assuming your Will controls every asset. In Pennsylvania, beneficiary designations typically supersede your Will.
This means that the Will only directs assets that pass via probate. Suppose most of your assets are in your brokerage accounts, and you do not name your children, grandchildren, or charity on the beneficiary designations. This leaves them with a substantially smaller amount than you intended.
Mistake #2: Missing tax planning opportunities
A costly error is missing tax-planning opportunities, which results in fewer assets passing on to your family and charity upon your passing.
If you are interested in leaving assets to charity, consider naming a donor-advised fund (DAF) as a beneficiary of your traditional IRA. You can list the charities as beneficiaries within your DAF. This approach allows the assets to bypass probate and avoid federal, state, and inheritance taxes. Additionally, you can use a DAF to give appreciated securities from your taxable brokerage account to charity without incurring taxes. You can read more about donor-advised funds here: “Ask the Adviser What the Benefits of Using a Donor-Advised Fund”.
If you have heirs in a high tax bracket, you could consider designating them as beneficiaries on your Roth IRA. Inheriting a Roth IRA is typically tax advantageous.
***Stopped Mistake # 3: Missing giving opportunities during your lifetime
The third mistake is failing to take advantage of opportunities during your lifetime to see the real-time impact.
Federal Estate Tax Exemption
In 2026 the Federal estate tax exemption allows single taxpayers to transfer up to $15 million estate-tax free during their lifetime or at death. For married couples, this amount doubles to $30 million.
Annual Gift Exclusion
The annual gift exclusion allows you to give $19,000 to an unlimited number of people without impacting your larger lifetime exemption amount. This means you could give each of your children and grandchildren $19,000 annually (or $38,000 if you are married) without needing to track these gifts. If you give over this amount, you will need to complete a gift tracking form when you file your tax return.
How might these funds benefit your heirs while they are still living? Would you find joy in seeing them use the funds during your lifetime?
Qualified Charitable Distributions (QCDs)
If you are 70.5 years old or older and have a traditional IRA, you may be eligible to make Qualified Charitable Distributions (QCDs) to qualifying charities. These distributions are not considered taxable income. Additionally, if you are taking Required Minimum Distributions (RMDs), any QCDs you make will count toward your RMD but will not be included as taxable income. This option could also create additional tax-planning opportunities, such as Roth conversions, which could benefit your heirs down the road.
Review Your Plan with an Adviser
At Rodgers & Associates, one of our financial advisers would be glad to review your estate plan and coordinate with your attorney. It is important to discuss achieving your goals tax efficiently, determining how much is sufficient for your lifetime needs, and planning for the Pennsylvania inheritance tax. You could read more about PA inheritance tax here.
Please let us know if we can be of assistance!
