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Beyond Financial Planning: Get Your Estate Plan in Order [Advisor Voices]

Don't leave your estate plan unfinished. Take these steps to ensure you have a complete estate plan.

Your financial planner has you on track for retirement and your kids’ college accounts are growing nicely. The family business is humming along, or your new promotion is going well. What else should you be thinking about? Now that you are accumulating assets, you should create a will and consider whether you might need a trust. I recently spoke at the Chicago Bar Association about the intersection of financial and estate planning. Below are some key take-aways.

Create a Will

Benefits of creating a will include the ability to: appoint a guardian for children under 18, specify how your wealth will be distributed, leave sentimental items or pets to loved ones, define your funeral arrangements, and appoint an executor to settle your affairs. Without a will, the court will appoint an administrator who will have to pay a bond premium—sometimes in the thousands of dollars. Having a will and trusted executor can ease the burden on distraught loved ones following your death. A will is particularly important for individuals who are unmarried with a long-term partner. In absence of a will, the local law may distribute assets to relatives instead of your partner. Wills are also beneficial for those who are divorcing—to keep assets from an estranged spouse; and it is a good idea for those who have remarried—specifying how your new spouse should be cared for vis a vis children (from a prior relationship).

It is a good idea to consult with an estate planning attorney to draft your will. If your desires change, your attorney can help amend (with a codicil) or revoke your will.

Update Your Beneficiaries

In addition to creating a will, it is important to consult with your financial advisor and estate attorney to make sure beneficiaries are correctly specified on your bank accounts, brokerage accounts, 401(k), individual retirement account, and other accounts. When you change jobs, get married or divorced, have a child, or purchase life insurance, you should review your account beneficiaries.

If you have accumulated sizable assets, usually $100k or more, your estate will have to be probated. This means your will and assets become public through a filing with the local court. Creditors are given the opportunity (typically for six months) to make claims against your estate.

Use a Trust for Privacy and Expediency

A trust allows a third party of your choosing to hold assets (investments, real estate, etc.) on behalf of a beneficiary that you identify. Benefits of having a trust may include:

  • Privacy
  • Reduced taxes
  • Trusted individual

One way to avoid the public nature of probate is to create a living trust. This may expedite settling your estate. A living trust allows you to maintain privacy by avoiding probate. While living, you can serve as trustee—controlling your personal property and business interests, managing real estate, and directing your investments. In the event of death or disability, a trustee you pre-selected has authority to manage assets for you and the trust’s beneficiaries.

Fund the Trust

Assets must be titled in the name of the trust. Otherwise those assets cannot be managed at the direction of the trustee. Your real estate (house, vacation home) should be titled in the trust. Business interests – ownership in an LLC or S-Corporation should be assigned to the trust.  Your bank, brokerage firm, and mortgage company will be provided with copies of the trust document. Forms are then signed to change account ownership to the trust. For retirement (401(k), IRA, and other) accounts, most folks name their spouse or children as primary beneficiary with their trust as contingent beneficiary. Your estate attorney and financial advisor can assist you in selecting beneficiaries.

It does require administrative effort to move your assets into trust. Once complete, it is simple to work with your attorney to amend items including: trust beneficiaries, distribution of wealth to loved ones or charity, and who you wish to serve as trustee.

Significant Wealth

If your current net worth exceeds $5.49 million for single individuals, or $10.98 million for married couples, or your financial advisor predicts your estate will be worth that much, your estate may be subject to federal tax. To reduce the value of your estate and associated tax, you may want to consider annual gifting to children or others (up to $14,000 per individual gift recipient, $28,000 if you’re married). If you have substantial real estate or business holdings that may not be easily liquidated to pay estate taxes, there are strategies that utilize an irrevocable trust which owns a permanent life insurance policy. Proceeds from the policy can cover estate taxes. It is best to consult with a knowledgeable financial planner and estate attorney for assistance with these advanced estate planning strategies.

Next Steps

To start your estate plan:

  • Make a list of your assets
  • Identify who you care about
  • Seek professional help from an estate planning attorney and/or financial advisor
  • Create a will or trust to benefit the people or organizations you care about

 

Peter Newman is a financial advisor in Champaign, IL. Questions or comments? Check out his GuideVine profile to watch Peter’s videos and learn more. You can also email him at peter@peakwealthplanning.com.

Disclaimer: This article does not constitute individual legal or financial advice. You should consult a professional who is familiar with your unique circumstances.

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