Before the changes from the OBBBA, federal estate taxes were a driving force for many estate plans. Now the $15 million federal exemption is permanent, and older estate plans may be vulnerable to outdated structures. A recent article from Financial Advisor, “Clients’ Wills May Be Outdated Despite $15 Million Federal Estate Tax Exemption,” tells readers their trusts could be an issue if money has better uses elsewhere.
This especially pertains to aggressively funded SLATs or bypass trust formula clauses, which could become potential liabilities. The same applies to credit shelter trusts that use sunset-specific language. A review of estate plans with an experienced estate planning attorney is necessary so any needed changes can be made promptly.
Equally problematic are trusts that were created but never properly funded. An unfunded trust doesn’t avoid probate, doesn’t direct assets, and won’t provide any protection to beneficiaries. If real estate property was placed in a trust, brokerage account, or bank accounts, all ownership documents need to be retitled or renamed to the correct designations.
This advice also applies to beneficiary designations on life insurance policies. Most retirement accounts, annuities, and POD/TOD (Payable on Death/Transfer on Death) accounts pass to beneficiaries outside the probate estate. Still, they must have an updated beneficiary designation to function as intended.
It’s very common for former spouses to be listed on 401(k)s, for children to be named as direct beneficiaries, or to neglect adding a beneficiary at all. Reviewing designations should be an annual event.
The SECURE Act changed how IRAs are treated, and the IRS grace period for missed RMDs ended in 2025. For most non-spouse beneficiaries, inherited IRAs must be emptied by the 10th anniversary of the original owner’s death. The penalty for missing this deadline is significant.
Managing taxes should work in tandem with estate planning. If gifting is part of an estate plan, it needs to be managed effectively, both in terms of timing and assets being gifted. Someone who doesn’t need their RMDs from an IRA can use the funds to make a qualified charitable distribution (QCD) to transfer up to $111,000 to a qualifying charity in 2026, if they meet specific guidelines.
Estate planning doesn’t need to be urgent, but it does need to be addressed when laws, life, or both change. Misaligned beneficiary designations, unfunded trusts, or inherited IRAs with active RMD obligations create expensive problems that may be addressed in advance.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. We help individuals and families establish living trusts, wills, powers of attorney, advance healthcare directives, and other essential estate planning documents designed to protect their loved ones and preserve their legacy. Schedule a quick and easy consultation with estate planning attorney Sedric E. Collins, Esq., or call 323-900-5450.
