The term “estate planning” conjures up specific ideas about leaving assets to heirs, squabbles over the mother’s jewelry, and long-running disputes with the inheritance court. While all of these things may happen, a good estate plan strives to avoid those outcomes and also works proactively during the life of the scheme to protect the assets. The method of distribution determined by your estate plan is irrelevant if none of your assets are left behind at death.
Comprehensive estate planning aims to plan for assets at death, but more importantly, plan for assets during your lifetime. The word “real estate” simply means everything that you have accumulated, saved and invested. So, “Estate planningIt means having a plan for all of your “things.” A sound plan requires input from specialists across multiple practice areas to ensure that nothing is missed and that there are no unintended consequences that negatively affect you.
For example, if your attorney recommends a course of action without understanding the tax implications, you may find yourself facing a much larger tax bill than you expected. If your financial planner neglects to properly prepare required minimum distributions (RMDs) on private Irish Republican Armyyou will be evaluated with an expensive penalty.
How many professionals must be involved in preparing your comprehensive estate plan? two? three? We say five. The five professionals who must have input into your estate plan to give you as much peace of mind as possible under current laws and regulations are: Attorney, financial consultant, tax professional, health care expert and insurance agent. These five individuals represent the five most important areas of risk in your retirement years.
Legal estate planning
The foundation of any good estate plan is the legal plan. Estate planning attorneys advise on options regarding important documents that protect your legal rights and carry out your wishes. They can also educate you on how to protect your assets in the event of issues such as lawsuits, divorce, or Long term care.
Other specialized issues that an estate planning attorney must address in your estate plan are expenditure concerns, which means that your beneficiaries are likely to quickly lose most or all of their inheritance if they inherit a lump sum. This could be because they spend frivolously but it could also mean that they are taking advantage that they would lose out on if they had too much money.
Other spending issues are children who are divorced and may lose part with a future ex-spouse, beneficiaries who have outstanding tax bills with the IRS or loved ones who struggle with addiction.
Because real estate plans need to evolve over time as conditions and laws change, it is important to build a plan that anticipates future events and builds flexibility. Your attorney should be able to educate you on the ways in which you can reserve the right to amend any documents you have drawn up as well as how to create appropriate contingencies.
Examples of a strong estate plan would be a health care power of attorney, living will, enduring power of attorney, last will, and possibly a trust. Powers of attorney allow a designated representative to handle your affairs and make decisions on your behalf if you are incapacitated. A life will sets out your final wishes regarding life support, easing the burden of this decision on your loved ones. The last will defines the final distribution plan and designates the person responsible for implementing it. Finally a trust It is a tool that can create distributions over time to any profligate beneficiaries, avoiding probate and protecting assets from risks such as taxes and long-term care spending.
Financial estate planning
The legal plan is the foundation of a good real estate plan, but the financial plan is the masterpiece we build on top. A legal plan gives us the confidence to be as bold as we choose to be with a financial plan. A sound financial plan is designed to provide confidence that we will not go overboard with our money while being able to achieve our goals.
Your financier should be able to adapt the advice they give you as your life changes. While you are still working, the goal is often to grow the money as much as possible within your chosen risk level. However, once you retire, the goal usually changes to protecting what you have accumulated. A change in goals requires a simultaneous change in approach. The amount of your money at risk should decrease as you get older because you have less time to wait for the market to recover.
Estate planning with a financial planner involves assessing lifetime income, including the loss of some of that income upon the death of a first spouse. It also involves balancing the amount of money invested in the market against the amount invested in instruments that reduce risk. While most of the professionals we discuss can’t use words like “guarantee,” a financial plan may include certain “guarantees” so you know you won’t run out of money.
We’ve all heard the adage, “Don’t put all your eggs in one basket,” and it applies to a sound financial estate plan. diversification Your real estate to include a variety of investments, such as stocks and bonds, life insurance, annuitiesCDs or any variety of other tools can allow you to build the home of your dreams, not just any structure on your foundation.
Tax estate planning
The past few years have seen some sweeping changes in tax laws, which have had a significant impact on estate planning. As our colleague Larry Hendrickson of G&H Financial Group He likes to say, “If you’ve been paying your taxes, it’s time to fire your accountant.” It has never been more important to have a professional give you tax advice.
the Security Act 2019 and the Safe Code 2.0 You have dramatically changed the way your beneficiaries will benefit from your efforts and the legacy you’ve built. Now is the time to learn about your options regarding how, when, and who pays taxes on all qualified retirement accounts. Does it make sense to pay some or all of your taxes now? Should you do a Roth conversion Or transfer assets to a trust? How will the children be affected if you leave them entirely A tax bomb them to dismantle? The answers to these questions, of course, require the financial planner and attorney to step in to understand the full picture.
The IRS also quietly overturned the move on the basis of inherited property passing outside the scope of the will. Prior to March 2023, beneficiaries who inherited property through an Irrevocable Trust would have received title to that property at the current fair market value, rather than at the cost of what the trust grantor originally paid for the property, thus eliminating Capital gains taxes.
with Rev. Roll. 2023-2The IRS stated that these properties are now inherited at the current fair market value, making the beneficiaries liable for those capital gains taxes after all. The alternative is to allow the property to pass through the probate process, thereby subjecting the asset to creditors’ claims, legal fees, court costs and other maintenance during the 13 months, on average, it takes to finalize the probate process.
Because tax laws change dramatically, it is important to consult a tax professional regarding the options available in your estate plan.
Healthcare estate planning
Statistically, most major bankruptcies are due to healthcare-related costs. entry regarding medical care Your coverage and options, as well as your long-term care options, will go a long way toward having peace of mind about your long-term care. We strive to eliminate talk of what we “hope” the plan will achieve and implement tools that we know will cover the health care cost that is a normal part of aging.
You should always keep in mind when estate planning how your income will affect your Medicare premiums. Estate healthcare plans take into account out-of-pocket costs, a co-payment, and, of course, what happens if you or your spouse needs assisted living or skilled nursing care. Some solutions to these concerns come from a financial or legal plan, which again illustrates the need for several professionals to work together on your comprehensive estate plan.
Estate planning insurance
Insurance planning is one of the easiest and cheapest aspects of planning, but it can have the biggest financial impact. Not properly insuring your property and vehicles can make you vulnerable to damage claims beyond your policy limits, which can subject your personal assets to foreclosure and loss. This is especially true of blanket policies.
For example, imagine a worker in your house, cleaning the gutters, who trips and falls off your roof, resulting in permanent spinal damage. They sued you and won a judgment of $797,000 in loss of wages and health for life. Your homeowner’s policy covers $300,000 per accident, so the remaining $497,000 may eventually come from your personal assets.
If you have purchased a comprehensive insurance policy, the additional amount will be covered by that policy. Since you can buy a million dollar canopy of cover, often for less than $200 a year, it is almost negligent not to get it.
A qualified insurance professional can review all of your liabilities with you and discover where you may need additional coverage. Although unlikely, all it takes is one bad accident to knock you out. When the cost is too high and the solution is too cheap, it becomes a must.
Beyond basic liability coverage is to properly evaluate and adjust your health care plans. Many people don’t realize costs that Medicare doesn’t cover and can be surprised to find they still owe thousands of medical bills each year. Choosing the right plan for them can help reduce these costs significantly.
Estate planning is one of those areas that we tend to put off until something happens. One reason is that we don’t want to think about it, or maybe we can’t even imagine something happening to us or our loved ones. But another reason is that many of us believe that all we need is a simple will or move on and pass the assets on to our children now.
However, the changing landscape of taxation, healthcare, and financial legislation makes simple planning a thing of the past. Gone are the days of doing things based on a code of honor or a handshake. Everything must be meticulously planned and documented, or your loved ones will undoubtedly be left with a mess and show little for their efforts to clean it up.
Proper and thorough estate planning will allow you to build the kind of legacy that future generations may enjoy.