Estate Planning: Evolve Beyond “Death & Taxes”

Whether your estate plan is simple or complicated, many details can undermine the effectiveness of your plan - especially procrastination and motivation based on estate taxes. Yes, tax planning is important. So is timing, privacy and clearly defined beneficiaries of assets. However, what about the kids?

For many couples in their 30’s and 40’s with young families, they view estate planning as something to do later when they get old, like their parents age. Big mistake.

  • Who is raising your kids?

  • Who is handling the money for their benefit?

  • When do they start receiving assets?

  • Are their important aspects of life you want your kids to experience?

  • Who is ensuring this is all being done properly as you wished?

The good news is you can determine these things, with some communication, planning, and then working with an estate planning attorney to establish documents ensuring your wishes. Here are considerations to get started as well as help avoid some common estate planning mistakes:

Consider using a will or trust to transfer property to children instead of owning property jointly. Unlike a will or revocable trust, a transfer of an interest in your property is irrevocable, which may prevent you from changing the disposition if circumstances change before your death. Holding the title to your personal residence jointly can result in partial loss of the capital gain exclusion if it is sold before your death. Therefore, it’s often recommended that you use your will to make any property transfers that will occur upon your death.

Think before gifting property to your children. Parents often regret having made outright gifts to a child if the child subsequently divorces, and the ex-son- or daughter-in-law is awarded an interest in the gifted property by a court. Or, under other circumstances, the property may be taken pursuant to a legal judgment against the child. These problems can be avoided through proper use of trusts or a business entity, such as an LLC.

Speaking of children, if under 18, designate guardians to care for them. Far to often this is overlooked or worse, assumed it will be either your parents (too old?) or nearest relative (a good fit or what of their desire?). Instead speak with your spouse and determine who best to raise your children, then have a conversation with these individuals on your wishes to see if they embrace the responsibility. If so, then work with an estate planning attorney to establish documents as well as discuss how assets will be utilized and under whose control/determination. Meaning, if you were to establish a revocable trust, one could set up a successor trustee that is not the guardians, which provides a “checks & balances” on the assets being for the benefit of your children and their well-being.

Ensure your assets pass according to your wishes upon your death. Many types of assets can pass to your heirs or others based upon beneficiary designations (e.g., life insurance, IRAs, brokerage accounts). The provisions of your will cannot change a beneficiary designation. Remember to account for items you’ve already designated when you create your will. Review your will, as well as all other beneficiary designations, when formulating your estate plan.

Know your estate’s true value for Federal estate tax purposes.  Many people are unaware of the fact that life insurance proceeds are included in their taxable estates if they own the policy. This could increase their total estate value to more than the amount sheltered from estate tax by the estate tax exemption. For 2018, the estate and gift tax exemption is $5.6 million per individual, up from $5.49 million in 2017. That means an individual can leave $5.6 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield north of $11 million ($11.2 million) from federal estate and gift taxes. ($5.12 million in 2012).

Check recent changes in the law regarding state death taxes. Many states have “decoupled” their death tax from the Federal estate tax, which means your estate could be subject to death tax in a state (i.e. Massachusetts), even if no Federal estate tax is due. However, with proper planning, this may be avoided. The laws of each state where you own property should be carefully reviewed to determine potential state death taxes and how to reduce them.

Maximize income tax basis “step-up” benefits at death. Consider holding low-basis/high-value assets to be given at your death, since the basis for capital gain computation purposes will be increased to fair market value at death. If the asset is given away, the basis remains at the property’s original cost.

Specify your desired funeral arrangements. A pre-arranged funeral may relieve family members from additional stress upon your death. You can also prepare for the costs of a funeral.

Plan for a potential disability. Consider establishing advance directives, powers of attorney, and designated trustees, since costly and time-consuming court proceedings may be required in order to appoint a guardian or conservator to act on your behalf if you become incapacitated.

Review and update your estate plan regularly. Changes in the law and in your personal situation make it important to periodically review and update your estate plan so that it continues to reflect your wishes. 

Early and thorough estate planning can help you reach your financial goals and help ensure that your wishes will ultimately be implemented.

Please call me at (508) 834-7733 or directly schedule a meeting to learn more about ways to steps to take in setting up your estate plan as well as be introduced to estate planning attorneys I’ve entrusted clients to have their documents established.  

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