Although estate planning may sound daunting, please don't put it off. To ensure your money and assets flow to your intended heirs, you must have an estate planning strategy in place.
People rarely consider estate planning methods because we do not frequently consider the repercussions of our passing or what might happen to our relatives once we are gone.
Less than one-third of Americans have a will, and even fewer have a customized, thorough estate plan that includes an end-of-life directive, despite a deadly pandemic.
Your estate plan should be uniquely crafted to meet your demands, objectives, and family needs. While basic methods can be a great starting point for a customized strategy, it is advised that you seek professional counsel to ensure that you have covered all the essentials and selected the best solutions for you and your family.
In this post, we'll go through some estate planning techniques that can help you safeguard your assets and family. Wills, taxes, superannuation, and other pertinent subjects will be covered.
Importance of Estate Planning Strategy
Even though it's not the most fun chore, estate planning is crucial. It can be intimidating, but it's a necessary sacrifice to create a plan for how to manage or transfer your assets in the case of your passing or losing your capacity.
A three-step procedure called estate planning involves:
- First, determine your assets and the assets in your more significant estate, such as life insurance, assets held in a super fund, jointly owned, and assets controlled by trusts or organizations.
- Second, identify any possible risks you want to handle, such as early death or loss of mental capacity, or probable beneficiary divorce or debt.
- Third, the creation and operation of frameworks and plans that include all of your assets and consider things like family concerns, risk minimization, tax minimization, and succession difficulties, as well as the flexibility to meet future changes.
Without an estate plan, your possessions may spend years in limbo in the legal system, which is why having one is crucial.
This could cause your successors and any family members left to handle your money to bear an unwanted burden. In addition to confirming that your assets are distributed to the persons you specify, planning can reduce income, gift, and estate taxes.
If you don't have an estate plan, specifically a will, your state's laws will decide what happens to your property and who receives custody of your kids.
Making an estate plan frequently conjures images of the incredibly affluent squabbling over corporate interests and inheritances.
In actuality, though, every adult must have a well-thought-out plan for what will happen to their children and possessions after they pass away.
Regardless of your present financial condition, employing the appropriate estate planning tools is critical to ensuring that your final wishes are fulfilled.
The individuals you care about the most can live much simpler lives (and file taxes) thanks to a good plan.
Estate Planning Strategy in a Nutshell
Business Succession Planning
It is crucial to ensure that your corporate, trust, and self-managed superannuation fund arrangements are coordinated. The future fulfillment of your investment in the business must be given proper attention if you manage a business.
Do you have a plan for leaving? If you have a company partner, how will you carry on with your operations if they pass away or become mentally incapable? Considerable consideration should be given to suitable insurance levels, a buy/sell agreement, and a shareholders agreement.
Create a Will
When preparing an estate, the will is frequently the first item that comes to mind. In your will, specify how you want your property handled when you die away. A will can determine how you want your numerous accounts dealt with and how you divide other properties.
You should also provide information on the guardianship of children, pets, and the rest. Additionally, you must choose a dependable executor to manage the will.
While there are virtual estate planning tools that can assist you in creating a simple will, you may want to think about hiring an estate planning lawyer. A seasoned estate planning lawyer from Bohm Wildish & Matsen, LLP, can aid with specific state rules, helping you build the right estate planning strategies.
Ensure the Organized Sharing of Assets
Even though life is complicated, your estate settlement doesn't have to be. You already know that you must choose beneficiaries for any assets you plan to leave to future generations. But to prevent having to go to the probate court, prospective lawsuits, or family issues, it's crucial to clarify these beneficiary designations as precisely as possible.
Do you have children from a prior union? Kids with particular requirements? A single piece of property that multiple children must share? In each scenario, naming your kids as beneficiaries and calling it quits could have unanticipated, unfavorable results. Instead, your estate plan should be particular about what you want to happen in each scenario.
Consider, for instance, whether it makes sense to name an heir as a direct beneficiary or if it would be preferable to create a trust for them that will disperse the money more judiciously. Identify backup beneficiaries if your principal beneficiaries are unable or unwilling to accept their income.
Additionally, ensure you routinely check and update your designations, particularly following significant life events.
Gifting as an Estate Planning Strategy
The federal government levies a gift tax; California does not. The gift tax is a tax on the allocation of property by one person to another while getting less or nothing in total return. Whether the transfer is intended to be a gift or not depends on the donor's intent.
Some customers use a planned gifting estate planning technique with substantial estates. They deliberately diminish the amount of their estate by donating assets. At the same time, they are still alive to lower or eliminate the estate tax following their passing.
This must be done cautiously to avoid paying gift taxes, ideally in consultation with a knowledgeable estate planning lawyer and financial counselor.
Complete Gifts to Trusts
Revocable (living) trusts are helpful tools for people who want to avoid probate, give heirs credit protection, specify their distribution preferences, and keep the flexibility to change their trust. The trust owner pays taxes on property held by the revocable trust.
Even while many clients have revocable trusts that are still operative, their beneficiaries' descendants might not. Beneficiary inheritors can create their revocable trusts, act as both grantor and trustee, and have the trust be made only for their advantage.
The parents or grandparents can contribute to the estate attorney fees to create the next-generation trust and then finance the new trust with sizeable donations, typically exceeding the yearly gift exclusion.
Both parties gain from this. The gift recipient is actively engaged in important estate planning on their own. When a gift exceeds the annual gift exclusion, it counts against the parents' or grandparents' estate exclusion and removes the asset's potential future appreciation.
Conservatorship
A conservatorship is frequently required when a conservatory hasn't made an appropriate and thorough estate plan. If this isn't done, a family member must get a court order to handle the Conservatee's finances and take charge of their health and welfare.
The family member may be able to establish a living trust for the Conservatee and eventually the Conservatee's family members after being elected as the Conservator under the California Probate Code and through a Substituted Judgement by a Superior Court Judge.
When the Conservatee passes away, this is a fantastic implement to avoid probate, ensure that the Conservatee's estate is dispersed relatively, and prevent needless expenses.
For a Conservatee, a trust or estate plan must be crafted appropriately and adhere to all applicable Probate Codes, California Rules of Court, and Local Court Rules requirements. The Court must be involved, the Conservatee must have independent legal representation provided by the Court, and the Conservatee's family members must cooperate.
Plan for Potential State Estate Taxes
While the federal estate tax receives much attention, some residents should know that many states also impose estate or inheritance taxes. Many states have "decoupled" themselves from the federal estate tax regime.
This indicates that the state uses various tax rates or exemption limits. A taxpayer's net worth can be much below the $11.7 million exclusion threshold for federal estate taxes while also being significantly higher than the threshold for the state in question.
It is crucial to seek legal advice on specific state laws and ways to reduce state estate or inheritance taxes, like using continuous life insurance to provide stability at death.
Buy Life Insurance Within a Trust
Purchasing a life insurance policy inside the trust is an alternative strategy for defending your family from a big IHT bill. In most cases, the death benefit from a life insurance policy is a part of the estate and is therefore liable to IHT.
However, the payout won't be considered when IHT is determined if the procedure is contained within a trust because the benefits can be paid to the beneficiaries immediately rather than the estate.
The Takeaway!
One of the nation's oldest and most knowledgeable practice groups, Bohm Wildish & Matsen, LLP, serves high-net-worth individuals, their families, and businesses to build a reliable estate planning strategy.
Today's clients of Bohm Wildish & Matsen include several families from California who were among the Firm's original clients. We represent descendants who live worldwide today, many generations later. We take great pride in acting as a link across generations, ensuring our client's values, desires, and objectives are upheld.
In conclusion, we provide the expertise that comes from a team of lawyers working together without sacrificing the individualized treatment that has been our hallmark as dependable family advisors.
Originally published 27 Oct, 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
