If you have accumulated assets, you need to plan for their disposition when you pass. The good news? The process doesn’t have to be complicated.
While some clients do maintain complex estate plans, all clients need to establish a secure estate plan to manage the life changes that occur in our lives—marriages, births, divorces, deaths, illnesses, or financial windfalls or downfalls.
Even if you only set up a basic will and name a beneficiary for your 401(k) plan, you are better off than two-thirds of Americans.
If you don’t plan for it, however, you cause unnecessary harm to the loved ones you leave behind. Probate or creditors, lawsuits or lawyers, one will eat up your assets; death taxes may take the rest.
72% of Americans do not have an updated will.
63% have no will; 9% have out-of-date wills.1
Let’s look at this void in planning more closely:
- Only half of Americans over the age of 65 have up-to-date wills in place.
- One in six Americans over the age of 65 have a will that is out of date.
- Wealthy Americans are no more likely to have written their will.
- Wealthy Americans are more likely to have an out-of-date will.
While these figures are hard to believe, perhaps, the real culprits are these individuals’ financial advisors who failed to advise them properly if they used financial advisors at all.
Business owners are particularly vulnerable because they work hard and, often, do not find the time to do the basic housekeeping of their financial lives.
This is why I wish to provide you in this post a mini-tutorial on estate planning.
Critical To-Do Actions
I want to keep this simple for you, so here is a quick list of information you need to prepare:
- Lists all your assets and liabilities
- Discuss with the family who becomes the guardian for your children
- Double-check or update beneficiaries for life insurance, IRAs et al
- Review the current federal estate tax-exemption limits
- Decide how to distribute your assets upon death— family, charities, institutions
- Record your desired funeral arrangements in writing and communicate to family
- Seek out the help of a certified estate-planning attorney (we offer recommendations)
Prepare a series of estate-affirming documents carefully and with consistent wording:
- Will, Living Will or Trust (trusts can limit 40% in estate taxes or even legal challenges)
- Durable Power of Attorney (to transact business on your behalf)
- Durable Power of Attorney for Healthcare (to make decisions for you, if incapacitated)
- Beneficiary Designations (some assets may pass to heirs outside of a will)
- Guardianship Designations (critical to your children’s future)
- Letter of Intent (for an executor or beneficiary to carry out your wishes)
Estate Tax Burdens
Federal gift/estate/GST exemptions increased in 2022 to $12.06 million per person (up from $11.7M per person in 2021). So, an individual can leave $12.06 million to heirs and pay no federal estate or gift tax. The gift tax annual exclusion per year increased in 2022 to $16,000 per donee per year (formerly $15,000 per donee per year).
Strategies to Preserve Your Estate
Think about the strategies available to shield your assets from the corrosive tax-effect:
- Use trusts to avoid probate and to maximize your estate tax exclusion.
- Make charitable donations to reduce your estate.
- Pay tax-deductible, family medical, and educational expenses from your estate.
- Loan assets to family members to minimize your estate.
- Buy and use life insurance to help pay estate taxes.
- Do annual gifting to reduce taxes and to leave your loved ones more.
Breathe Easily: Your Affairs Are In Order
With your estate plan behind you, find peace of mind knowing your financial house is in order.
You can glance back at your wife or husband and know they’re taken care of.
Look your children in the eyes, and know you’ve given them a jumpstart in life.
Relax in the knowledge your chosen charities will benefit from your hard work.
Leave a legacy.
Five Life-Worthy Reasons to Leave a Legacy
The late Jim Rohn, business philosopher, personal development writer, and teacher asked, “Why is leaving a legacy important? Here’s what he believed your legacy represents:
- “It is part of the ongoing foundation of life.
- It has the raw power for good and for bad.
- It is an act of responsibility to leave a legacy.
- It breaks the downward pull of selfishness that can be inherent in all of us.
- It keeps us focused on the big picture.”
Let us know how we can help.
To protecting your well-being at work and in life,
Joseph E. Henehan, president and chief executive officer
The Henehan Company