Brief Overview of Estate Planning

Firstly, and perhaps most importantly, make sure you select someone trusted to handle your estate planning. It is a well known, but little spoken about the fact that not all professionals act in the favorable interest of their clients – whether they let self-interest override morals, focus on things that only maximize income opportunity, or have a bias towards certain aspects of estate planning. With so many candidates to choose from, selecting the right trustee can be a daunting task, but there are some basic strategies you can follow to make the process easier.

The most important tip when choosing the right trustee is to do your research. Doing research should not be taken lightly as you are putting your future and your estate in this person’s hands. Ask questions, ask for opinions from people in similar positions as you, request formal reviews, and discuss all aspects of your estate with the selected person to ensure their ideology falls in line with yours. Ultimately, you want someone who is going to represent your best interest with as few complications as possible.

One of the primary purposes of allocating financial resources for retirement is to build wealth for their loved ones. Saving up money is recommended, but it does come with a price. Taxes are applied to any accrued wealth and if you don’t make good decisions regarding these taxes, they will eat away at your estate and decrease the value of it. This serves little benefit to your benefactors.

During estate planning, it is critical to consider every kind of possible tax scenario you may be faced with – income taxes, gift taxes, estate taxes, wealth transfer taxes, and generation-skipping taxes. When you cut out the income taxes, you are left with wealth transfer taxes and each tax in this group is comprised of 40% of the value of the measurable item. State taxes must also be reviewed, so it is advised to work with an estate planning attorney familiar with your state’s tax procedures/laws.

With the creation of the Tax Cuts and Jobs Act, or the TCJA, the percentage of exemptions for estate planning taxes and gifts increased significantly. Based on the 2020 research data, the exemption total falls at $11.58 per individual and at 23.16 million for people who are married. Anything that falls above that amount is required to accrue a tax valued at 40% if the gift’s appraised value.

Per year, you can offer an unlimited number of recipients up to $15,000 in the form of gifts. If you give someone anymore than $15,000, the first $15,000 will still fall under the exemption clause known as the annual exclusion gift, but the remaining total will be subject to taxation. Similar rules apply to estate taxes, but the total value of exemption tax is reduced based on the value of the gifts you’ve given during your lifetime.

Another facet of estate taxation is the taxes paid when you give property to a grandchild, known as generation-skipping transfer taxes. This rule imposes a tax on gifts and direct transfers to persons who are at least 37.5 years younger than the donor or share a gap of at least one generation.

Certain situations can manifest that you have zero influence over and it is important to have an estate plan that can’t be invalidated or wiped out. Illness, aging, and accidents can decrease your inheritance – the inheritance you’ve spent your entire life carefully crafting. For reassurance that your assets won’t be affected, you can:

• Create End-of-Life-Plan
• Select Medical/Healthcare Power of Attorney
• Work with a HIPPA release agent
• Create a Revocable trust

Having these things in order ensures the successful execution of your final wishes for your estate. Working with an estate planning attorney to address these issues/plans is advisable to make sure they can be legally upheld.

As stated above, some estate planning lawyers can fall trap to self-interest. With that in mind, many estate planning attornies will try to push you down the traditional will path because they will benefit more than if you went with the living trust option. If an estate planning attorney tries to present a living trust as a more expensive option it is important to do your own research and not just take their word for it. Upfront, living trusts are almost always more expensive, but in the grand scheme of things, it can be cheaper. Avoiding the probate process is key if you hope to save money.

To avoid probate, you must adopt a living trust. With a trust, not everything is in your name, so you are able to bypass probate while still having control of your assets while alive. Living trusts can be declared revocable, allowing it to be amended, modified, or revoked.
With all of this in mind, you now possess a basic understanding of the estate planning process and the challenges it presents. This information will be useful during the early stages of the process, but consulting with qualified individuals is important before taking any major steps.