Estate Planning Basics

Apr 1, 2020

Estate Planning Basics

October is “Estate Planning Awareness Month.” Here are some basics about estate planning that everyone should know.

Everyone should have a plan

Even if you think “you’re not rich enough” to have an “estate,” unless you’re homeless or destitute you should have an estate plan in place. Estate plans provide for the people you leave behind when you pass away, and help ensure that your final wishes get carried out. The last thing you want is your family members fighting over dishes or fishing poles when you’re gone, or having to sell the family home or take other drastic measures just to get by.

Often estate plans help reduce taxation to heirs. Even though the estate tax exemption doubled to $11.18 million for singles ($22.36 million for couples) as a result of the tax legislation passed last December, the exemption drops back down to 2017 levels after 2025, so it’s important to plan now to help take best advantage of estate tax laws for your particular situation.1

There are important differences between wills and trusts

  1. Having a trust in place usually allows your estate to avoid probate court and keeps your finances private. Trust assets are usually distributed by the trust executor once a death certificate has been issued and funds are available immediately to your family. If there are no estate planning documents, or if there is just a will in place, your family will have to go through probate court, which can take a very long time in some states, and can be very costly in terms of legal fees. Additionally probate court proceedings are generally published in the newspaper so that your financial situation and your assets become public knowledge.2
  2. A will is the document used to specify guardians for minor children.2
  3. It is often recommended that a will be used with a “pour-over” provision for all assets not specifically named in a trust; and/or that an exhibit or list of items be attached to a will to name individual gift recipients, be the items large or small, valuable or just sentimental.

Beneficiary designations take precedence

Beneficiaries you have named on life insurance policies, bank accounts and/or 401(k)s or IRA accounts take precedence over your estate planning documents. 3 This is extremely important to address, and all docs should match so that there are no conflicts or surprises later. Life changes such as divorces, deaths or birth of new children/grandchildren require that your documents and beneficiaries be updated. That’s why regular reviews are critical—we recommend annual reviews of all your documents, policies and accounts.

Attorneys may not know financial ramifications

Estate attorneys can create the documents you need, but they may not know about all the ins and outs of investments and insurance policies that can help expedite efficient wealth transfer, reduce potential problems and/or mitigate taxation as laws morph and change. Most experts agree that you need a team which includes your estate attorney, your CPA or tax preparer, and your financial advisor or wealth planner.

The importance of digital assets

Online assets are a new area of estate planning that need to be incorporated into your plan. The Uniform Fiduciary Access to Digital Assets Act, which has been passed in most states, provides that an owner of digital assets can specify who will be able to access and dispose of any digital assets after death so that email accounts, social media accounts, PayPal accounts, domain names, intellectual property stored on a computer and other things like virtual currency can be accessed by heirs.4

Call us for help with retirement planning, estate planning, investment management, insurance services, tax planning … and much more. Alloy Wealth Management in Charlotte NC can be reached at (800) 689-3935.

Sources:

1 “How the new tax law upends estate planning,” Financial-planning.com https://www.financial-planning.com/news/how-the-new-tax-law-changes-estate-planning-trusts-income-tax-planning (accessed October 18, 2018).

2 “Will vs Trust: Knowing The Difference,” Investopedia.com. https://www.investopedia.com/articles/personal-finance/051315/will-vs-trust-difference-between-two.asp (accessed October 18, 2018).

3 “Why Beneficiary Designations Override Your Will,” Thebalance.com. https://www.thebalance.com/why-beneficiary-designations-override-your-will-2388824 (accessed October 18, 2018).

4 “The Big Hole in Estate Plans: Digital Assets,” Thinkadvisor.com. https://www.thinkadvisor.com/2018/10/04/the-big-hole-in-estate-plans-digital-assets/ (accessed October 18, 2018).