Two weeks ago we discussed the Federal estate tax exclusion amount of nearly $12 million per person. A common misconception is that estate planning only applies to the wealthy or those that will owe taxes. We recommend that all clients review their estate plan documents with the same regularity as they would their own health. Many people see their doctor for a check-up annually. Consider your estate plan the same light regardless of your net worth.
WHAT DO YOU MEAN BY ESTATE PLAN DOCUMENTS?
- For most clients, I am referring to your will(s), trust documents, powers of attorney for health care and financial matters, and beneficiary designation forms.
- Every one of these documents is a powerful tool that can accomplish a specific objective or avoid an unintended result.
- For example, my wife and I have 4 young children. We have wills that direct who will be appointed guardians if we were both to pass away.
- Beneficiary designation forms control the disposition of retirement assets like IRAs, 401(k), 403(b). In many client situations, the retirement plan may be the single largest asset so attention should be paid to how it will flow after death.
IF I DON’T HAVE TO WORRY ABOUT ESTATE TAXES, THEN WHAT SHOULD I WORRY ABOUT?
- As we discussed, the current $12 million exemption means that most people will not have to worry about estate taxes.
- Income taxes, however, can apply regardless of net worth and no one wants to pay more tax than necessary. Estate planning can include steps to avoid or minimize income taxes after death.
- Last week, we discussed the step-up in basis rules and how that can be used to your advantage.
- You may want to include charity or charities in your overall estate plan. In a future call, we will discuss which assets can be most beneficial to direct towards charity.
- You may have a particular asset that requires extra attention (e.g. family cottage).
- You may also have beneficiaries that require special planning such as children or grandchildren with special needs, or those with potential creditor or divorce risk.
WHY SHOULD I LOOK AT ESTATE PLANNING EACH YEAR LIKE A DOCTOR’S VISIT?
- Just like with your health, your goals, family, and finances change all the time.
- Some factors are within your control (e.g. eating better or empowering the right person to make your health care decisions).
- Some factors are beyond your control (e.g. new medications or tax laws), but you can plan for the current landscape when properly informed.
Be sure to talk to a tax professional if you have any questions about estate planning check-ups.