To ensure that your legacy lives on and positively impacts future generations, you must implement an efficient estate planning process. Optimizing the transfer of your assets can maximize benefits for your heirs and charitable causes you are passionate about.
Let’s dive deep into estate planning and how you can efficiently pass on your assets to beneficiaries and charitable organizations.
Understanding the Basics of Estate Planning
Estate planning can seem rather dry, but it’s a crucial part of your legacy. It names the people, organizations, and other entities you want to take ownership of your assets after you pass, such as your home, real estate holdings, personal property, savings accounts, and investments.
It’s a myth that only the ultra-wealthy utilize estate planning—anyone and everyone should consider estate planning. If you own an asset, insurance policy, or savings account, your estate plan will serve as a roadmap for distributing those assets.
Active and efficient estate planning ensures that your loved ones can carry out your plans and intentions after you’re gone, so it’s not something you want to brush under the rug.
Identifying Your Goals and Objectives
An estate plan isn’t something you should quickly or carelessly put together. It’s a critical document that requires a deep reflection on your goals and values. To build an efficient and thoughtful estate plan, you must define your ‘why’.
Let’s break it down into two simple categories—what and why:
- What are your priorities? This could be anything from providing for your family to minimizing your taxes to supporting charitable causes.
- Who is most important to you? Consider your immediate or extended family, community members, relatives, or close friends. How do you want to impact these important people?
It’s important to tailor your estate plan to your unique wishes and values. No two estate plans should be identical because no two people have the same goals. Once you understand what your legacy personally means to you, you can begin outlining your estate plan.
Creating a Will and/or Trust
A will is the cornerstone of your estate plan. It’s an official document that outlines how you want your assets distributed and who you want them distributed to after your death. Assets within a will can include, but is not limited to, your bank accounts, investments, or personal property.
Without a will, the asset distribution process can be long, complicated, and costly. Dying without a will, known as “dying intestate” or “intestate succession”, means that the state will control the distribution of your assets. This means that:
- Your estate will need to go through probate
- The court will determine guardianship of your children
- Your surviving spouse will likely receive a portion of your assets
While the specifics range from state to state, the outcome is the same: you have no control over your assets.
You may also consider establishing a trust, which is a fiduciary agreement that allows a third party (trustee) to hold and control asset transfer. Trusts have several benefits, including:
- Control of your wealth and assets
- Protection of your legacy
- Probate avoidance
- Privacy of your wealth
- Minimizing court fees
- Reducing estate taxes
- Saving your family time
There are many types of trusts, but what sets them apart is whether they are revocable or irrevocable. A revocable trust, also known as a living trust, helps you retain control of your assets during your lifetime and ensures your assets can avoid probate. It can be dissolved or updated as you see fit.
An irrevocable trust transfers your assets out of your estate and cannot be changed in any way once it’s set up. If your primary estate planning goal is to reduce estate taxes, an irrevocable trust could be a wise option to consider. But before making a decision, consult with a professional to ensure you choose the right type of trust for your needs and goals.
Appointing Executors and Trustees
The executor of your estate is the administrator of your last will and testament. They are responsible for managing your estate, paying taxes and bills, identifying probate assets, and working closely with attorneys or accountants throughout the process.
As you can imagine, being an executor is an enormous responsibility, so you don’t want to ask just anybody. An ideal executor should be:
- Responsible and trustworthy
- Financially savvy and literate
- Highly organized
- Communicative with your heirs
Most importantly, your executor must have the time and mental capacity to handle the intricate process of managing your estate.
If you don’t have a person you can trust with this responsibility, don’t fear! There are alternative routes you can consider to appoint your executor such as:
- Hiring your CPA
- Looking into a trust company
- Utilizing your bank
Minimizing Estate Taxes
The estate tax is a federal and state levy that assesses an estate’s fair market value. Estate taxes can build up quickly, but there are a few strategies you can implement to help minimize the tax bill:
- Gifting and annual exclusion: An annual exclusion defines how much a person can transfer to another without paying a gift tax. For 2023, the annual exclusion amount it $17,000.
- Marital deductions: You can ‘gift’ your spouse an unlimited amount of assets without incurring the estate or gift tax. However, the taxes will later apply when the surviving spouse dies.
- Charitable giving: You can leave assets to a qualified charity upon your death. The assets will be deducted from your estate which will lower the overall tax bill. You can consider donor-advised funds, creating a charitable remainder trust, or charitable bequests to implement charitable giving into your estate plan.
As always, taxes are complicated and laws change constantly, so working with a tax professional is crucial to ensure that your estate and heirs are protected.
Regularly Review and Update Your Plan
Your estate plan is a living document, so it needs to be reviewed and updated regularly. Major life events such as marriages, career changes, deaths, births, and divorces can impact the structure of your estate plan. Work with an estate planning attorney you trust to ensure that everything remains current and in line with your goals.
Your estate plan is a thoughtfully crafted document that defines how you want your assets distributed and to whom. It determines your legacy and the impact you leave behind for generations to come. If you’re looking for a financial planner to help you get your affairs in order, get in touch with our team today.
