Going beyond “just the documents”
In this month’s 8 Wealth Issues column, I wanted to spend some time discussing estate and legacy considerations. We will be covering some of these at our next client workshop as well.
Essential Documents. Most attorneys will prepare the essential estate documents in negotiated packaged pricing. These typically include a will & trust and springing durable powers of attorney for finance & healthcare. The power of attorney for finance is important for someone to have access to your accounts in the event of your incapacity (think about the ability of a spouse to access your retirement accounts).
Choosing an Executor/Successor Trustee. Selecting someone to administer your affairs after your passing is an important part of the process, but so is communicating this fact to that person. Simply naming someone in your will is not enough. We encourage clients to sit down with the person to be sure they understand your wishes, the resources they should turn to with regard to your assets, and how you would like your estate administered. Be sure you revisit this choice, for as life progresses, you may wish to re-name your designee for any number of reasons.
Taxes: Estate Tax & Income Tax Considerations. We all have an asset exemption for estate tax purposes. This exemption has changed considerably over the years based on the laws set forth by the Federal government. Some states also have estate taxes (currently California does not).
There are also income tax considerations for certain inherited assets. The most common surround tax-qualified retirement accounts and annuities. Your heirs may have options on the treatment of these distributions, and we encourage you to communicate that to them before it’s too late. For instance, Stretch/Beneficiary IRAs can be a great preservation strategy for an inherited retirement account. Oftentimes beneficiaries do not know about these options.
Conduct a Beneficiary Check. Certain types of assets pass outside of probate (and/or outside of your trust). We encourage clients to revisit who is named on retirement accounts, life insurance policies, and transfer on death designations. Often life events dictate a need to update your beneficiary (e.g., divorce).
Specific Bequests, and the Threats to Them. I have had clients tell me that they want to be sure that there is something specific left for someone specific—be it a family heirloom or an exact dollar amount. These bequests can be made as part of the trust, but sometimes the challenge can be in making sure that there is enough money left at the end of your life. As we plan for longer and longer retirements, people’s nest eggs need to last longer. Additionally the cost of a health event that would necessitate a care situation can be devastating to any planned legacies. Long term care insurance can sometimes help with covering these costs and ensuring legacy goals.
Your Legacy: Estate Transition & Administration. What isn’t often talked about in the estate planning process is the value of communicating your plan with loved ones. I have spent time with many clients who had to piece through parent’s estates, and often discovered how certain assets “worked” from an inherited standpoint. Some people do not realize that their trust will need to file a tax return in the year that it distributes assets. This estate transition work and the actual administration of assets is a value-added service our practice provides. I can tell you that those who have had a family-oriented meeting before the inevitable tend to have a smoother path.
This information has been derived from sources believed to be accurate This article is for informational purposes only. It is intended to be accurate and authoritative in regard to the subject matter covered. It is presented with the understanding that we are not engaged in rendering legal or tax advice through this article. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. IRS Circular 230 Disclosure: Any discussion pertaining to taxes in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
