Understanding core assets and excess assets in retirement

On Behalf of | Jul 12, 2021 | Estate Planning

Careful estate planning is essential for a peaceful retirement in Michigan. In general, retirees must plan how they will finance their retirement with core assets and what portion of their excess assets they want to leave to beneficiaries. The first step to planning both of these things is to identify your goals.

What do you hope to do with your excess assets?

Every retiree must designate a certain amount of their wealth to their normal living expenses. After calculating for a generous number of years ahead and adding in the expenses of possible unforeseeable events, you’ll understand how much money should be designated as “core assets.”

Anything left after calculating for your core assets is considered excess assets. If you invested wisely over your lifetime, the excess assets that you accumulated can be earmarked for an inheritance, a charitable contribution or extra spending during your retirement. One of the first steps in estate planning is deciding what you would like to achieve with these excess funds.

Consider tax implications for beneficiaries

If you would like to leave a chunk of your excess funds to your beneficiaries, it’s important to consider the tax implications of these gifts. For example, if you include a traditional IRA in an inheritance, your beneficiaries may have a large tax bill when they withdraw from it.

A traditional IRA may be less expensive for you during your lifetime, but the cost will be deferred to your beneficiaries. On the other hand, a Roth IRA could cost you more now, but your heirs may be able to inherit tax-free distributions. It all depends on what your goals for your excess funds are.

If you are unsure how to optimize your excess assets, a lawyer may be able to help. A legal professional may explain the tax implications of various assets to help you decide what to leave to beneficiaries.