12 Months of Estate Planning: A Plan to Get Your Estate Plan Set up in 2020

12 Months of Estate Planning: A Plan to Get Your Estate Plan Set up in 2020

Estate planning can be one of the most important things you do for your family’s future, but it can also be overwhelming. Between heavy subjects you don’t want to think about, the need to do a lot of paperwork, and everything else going on in your life, it can be too easy to keep putting off your estate plan until later. The problem is you never know when you will need it. Get started before it’s too late by doing just a little bit at a time.

January: Determine Your Goals

Who do you need to take care of? Do you have a spouse that relies on your income? Children that still need an education? Grandchildren that you want to give a head start in life? Charities or other important causes that you wish to support?

Your estate plan isn’t a chore you have to check off to be a responsible adult. It’s something you want to do to achieve your goals. There are many types of estate planning tools available that work best in different situations. To pick the right tools, you need to begin with a plan for what you want to do — just like drawing up the blueprints for a house.

February: Take Inventory

After you know who you want to support, you need to know how you can. What assets do you have? Your home? Cash savings? Investments? A business? Family heirlooms?

When you divide your estate, you may wish to provide some loved ones with financial support and others emotional support in the form of specific items that will mean more to them. It’s also important to understand that if you have any debts, your creditors will take precedence over your heirs, so you need to account for those as well.

March: Create a Will

Wills are the most common estate planning tool because they are the simplest way to ensure that each of your loved ones is cared for in the way that you’ve chosen. You can create a will on your own, but there are some legal technicalities that could leave your will open to challenges or having some of your wishes not honored. An estate planning attorney can help you avoid those complexities. Even if you plan to use other estate planning tools, having a will is still a good catchall for things that may not otherwise be covered.

April: Name Beneficiaries

When you name beneficiaries on your bank accounts and investment accounts, those accounts automatically go to your chosen beneficiaries upon your death. This allows those beneficiaries to receive financial support without having to wait for your will to go through probate.

The main benefit to taking this step is so that any family members who need immediate financial support can receive it. For example, if they relied on your income to cover their living expenses, they may not have enough money to buy groceries or to make rent or mortgage payments on your home that they continue to live in.

May: Consider a Trust

A trust is another way to keep assets out of probate and transfer them directly to family members. Again, the goal is to skip the weeks or months of delays it takes to execute your will in probate.

A trust can also be used to ensure that the funds you leave go towards your intended purpose. You may leave a trust for your spouse’s living expenses or your children’s schooling. You may also restrict your children’s or grandchildren’s access to their inheritance until they are older and wiser and will hopefully put it to good use.

June: Plan for Your Healthcare

In addition to planning for what happens after you’re gone, you also need to have plans for what happens if you can’t make decisions for yourself while you’re hospitalized for a serious accident or illness. Even in close families, family members may disagree about what you want, and doctors may not be able to legally follow their instructions.

To ensure your wishes are honored, consider a living will, advanced healthcare directive, or medical power of attorney. These documents allow you to designate a trusted loved one to make decisions on your behalf with full authority. You can also include any specific treatments or end-of-life options that you want your agent to request on your behalf.

July: Designate a Financial Power of Attorney

Like the person you select to make your healthcare decisions, your financial power of attorney will step in if you’re unable to manage your finances. A full durable financial power of attorney gives your agent the ability to manage your bills and assets if you’re ever temporarily or permanently incapacitated.

You can also use a financial power of attorney when you’re still able to care for yourself to some degree but need extra help with certain tasks. For example, you might sign a limited scope power of attorney allowing a loved one to manage your checking account and pay your bills.

August: Look Into Life Insurance

Life insurance is another tool you can use to provide for your family financially when you’re unable to. Many working people opt to buy a policy large enough to replace their expected future income to protect their spouse’s and children’s lifestyles that were planned around that income. You can also use life insurance to guard against things like medical debts from reducing what you can leave to your family.

As with your other assets, you will need to name one or more beneficiaries in your life insurance policy or provide for the cash value of the policy when you write your will.

September: Plan for Estate Taxes

Estate taxes generally only affect families with multi-million dollar net worths, but you still need to be aware of them. Estate taxes can be particularly devastating when your net worth is mostly in real estate, a business, or other non-liquid assets. This type of situation often forces a family to sell a treasured home or multi-generational business to pay the tax bill. By planning how you structure your estate ahead of time, you can avoid taxes or at least make sure your family will have the ability to pay them.

October: Protect Your Business

In one sense, a business is like any other asset. You can leave it in your will to a loved one, or it can be part of your general estate to be divided up between your heirs.

However, businesses also have to be maintained if they are to continue to provide for your family. The death of an owner or key employee can be highly disruptive to the business and possibly even put it out of business. You should create a succession plan that provides for continuity of operations no matter what happens and that also gradually prepares your loved ones to follow in your footsteps if that’s your goal.

November: Organize Everything

Your estate plan is no good if no one knows about it to put it into action. Keep all of your important documents together in a fireproof safe that your family knows the location of. You may also wish to leave copies with your attorney or in a bank safe deposit box. Again, tell your family.

When you have a medical power of attorney or financial power of attorney, give copies to your doctors or banks in advance. Don’t forget to give them updated documents if you change or cancel your existing plans.

December: Review Everything Each Year

When you stop to reflect on another year gone by, think about how the changes during the year will affect your family’s future. New children may be born, others may grow up and no longer need as much help, and you may have new wealth to consider. While you don’t need to redo your estate plan every year, you should update the relevant portions of it after major life changes so that it continues to meet your goals for your family.

Estate Planning with Lilac City Law

Lilac City provides a full range of estate planning services and can help you develop a comprehensive plan for you and your family. We can help you put it together over the next year or help you get it done even faster. To learn more, contact us now to schedule a consultation.

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Maximizing Tax Umbrellas for Estates

You have made it your life’s work to leave your family with substantial assets to provide for them after you are gone. Legacy is extremely difficult to build, but the estate tax law in the United States does not seem to take this into consideration.

Estate tax can rip as much as 40% of your family’s assets from them, depending on the value of your estate and its location in the country.

Right now is the time to protect your estate from federal and state taxes. If you take the time to create a well thought out plan, you can protect a great deal of the wealth than you have earned for your family.

Here are some powerful tips that you need to know.

Knowing Whether Your Estate Will Be Taxed

Estate taxes are not the same everywhere. Depending on the state you reside in, you do not have to be ultra-wealthy in order to be harshly taxed. Federal estate taxes have a minimum threshold that is in the million-dollar estate valuation, but states like Washington or Idaho can very easily tax middle-class families. If you are leaving behind any sort of investments, bank accounts, businesses, property or life insurance packages, the estate tax applies to you regardless of the size of that asset.

Also note, valuation is often subjective, and it is a discussion you should have with your estate planning attorney.  When it comes to estate taxes, you do not know whether the state will try to value your real estate or businesses higher than other sorts of appraisals – you should not leave it up to them to determine a fair valuation.

Geography is also something to take into account – if you live in a premium real estate location, just a couple of properties can push your entire estate value through the roof.  Sometimes this comes as a big surprise to the family after the passing of a loved one.  For example, the children of farmers often find themselves stuck with huge tax bills upon the death of a matriarch or patriarch because of the hidden value of the land on which the farm sits.

Providing Gifts and Charity the Smart Way

If you reduce the value of your estate through gifts to your children and grandchildren, that value cannot be counted against you for estate tax purposes. Every year, individuals save on the estate tax bill by giving away tens of thousands of dollars to their loved ones.

Moreover, making donations to charitable organizations is another great way to reduce your estate tax bill. These donations may also have an additional tax deduction attached to them. Donating to charity is a great way to ensure that the money you earn is used in the way that you prefer after you are gone.

Consult with your lawyer to learn how to maximize this benefit for your present taxes, as well as the ones that will impact your family after your passing.

Knowing When to Use Your Estate Tax Exemption

Everyone has a large (multimillion-dollar) tax exemption for estate taxes that can be used at any time, not only at the time of death. Knowing how to use the exemption can be an essential tool for reducing a tax bill before passing an asset on to a child.

So, what exactly is the estate tax exemption? Let’s say that you have an asset or an account that you expect to grow exponentially in the coming years. Right now, the value of that business is less than the estate tax minimum. In the future, you expect it to grow beyond this exemption. (In most cases, this type of asset will be a business.) Because you can use the lifetime exemption at any time, if you give away the business to a child or grandchild before it passes above the estate tax minimum limit, there will be no estate tax on the asset when you pass on.

Using a Trust Structure for Your Most Important and Valuable Assets

Establishing a trust is one of the best ways to avoid big out of pocket estate tax payments. Many people may hesitate at the idea of handing over large chunks of assets to others inside of a trust. However, the rules say that the person managing a trust can be a trusted family member, or even yourself.

A trust is one of the most sophisticated tax umbrella structures available to individuals. As such, it requires careful planning and coordination of care to establish & employ correctly. The type of trust that you choose can also make a difference.

If you are serious about preserving your legacy, it is essential that you craft your trusts with the right legal help.  

Using Life Insurance to Protect Your Assets

First, this is not financial advice.  However, life insurance is a conversation we often have with clients and there are certainly a lot of tie-ins to your insurance policies and a healthy estate plan. 

Some of the best life insurance policies, for high net worth individuals (HNWIs) for example, may include provisions for paying off any estate taxes that are due at the time of death. To enable this kind of benefit, you might want to, again, set up a trust.  Regardless, these financial maneuvers and plans should be discussed with your estate planning attorney. 

In short, using life insurance smartly is a great move for HNWIs who would be concerned about the effects of estate taxes on their heirs inheritance(s).

Additional Items to Consider Regarding Your Estate Taxes

Now that we have gone over a few strategies that you can employ to shield your assets from estate taxes, let’s go over a few things that you need to know so that you can go to your attorney as informed as possible.

  • A relatively new tax law (The Tax Cuts and Jobs Act) allows you to give away slightly over $11 million over your lifetime in gifts that will not be taxed subsequently on your estate. This law will only last until the end of 2025. After that, it will fall back to $5 million, meaning that anything more that you give away may get taxed by the IRS starting in 2026.
  • If you are able to get your gifts to your loved ones before 2025, the United States Treasury and the IRS are likely to allow those transfers to stay as tax-favored gifts.
  • However, depending on your situation, using the “step-up” basis may actually save your family more money. The step-up basis allows an asset to be valued at its cost basis at the time of passage rather than at the time of acquisition. Stepping up the cost basis wipes out any paper profit the asset may have generated in the past, reducing the basis for the estate tax.

What Is the Answer? Get the Help That You Need Right Now.

We are here to help you with properly managing and maximizing the tax umbrellas available to you for your estate.

Protecting your estate is an ongoing responsibility – one that will require experienced legal assistance for the entire process of establishing your estate plan and modifying it over the coming years and decades, as necessary.

If you are ready to protect your hard-earned lifetime work, contact us today!

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