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Seven Estate Planning Basics
Many think they have nothing worth passing on or are intimated or confused about the idea – that’s hardly ever the case. People generally have more to lose than they realize and very often simple planning can usually minimize or eliminate this. The primary goal of an estate plan is that it enables the estate owner, regardless of income or assets, to control their legacy.
The aim of every estate plan is to assure that your wishes are fulfilled. Think of it as your best chance to make everything official, including keeping assets in the family and in the way in which you believe they will be best kept. But like with many financial planning matters, an estate plan should not be intimidating, nor should it be something to postpone. The most important thing to do is to get started.
Today estate planning is no longer “only for the wealthy.” This is largely due to rising, long-term real estate values and other investments, however, stratospheric medical costs can erode even a hefty nest egg – which is why estate planning makes sense. Remember that the efficient transfer of what you’ve very often spent a lifetime earning should be a key part of your long-term planning.
Consider the alternative: if you don’t make decisions for your estate, the government -- federal and sometimes state -- will do so, with little regard for tax liability or your considerations and can take years to complete. And best of all it’s relatively quick and painless.
When did you last review your Estate Plan?
If the answer is when you first signed the stack of documents at your attorney’s office or don’t remember, it may be time to revisit it. Many of us complete an estate plan and then fail to revisit it for years (and some never do).
Life, however, keeps changing, so do tax laws. Major life events, such as a birth, marriage, divorce, or death occur. At a minimum, an estate plan should be dusted off and revisited at least every three to five years, to help ensure alignment with current laws and make sure your wishes are in place.
So twenty years removed from the “I should think about my estate” narrative, are you at risk of losing everything you for which you’ve planned?
Legally, yes. Laws governing estate planning and taxation have drastically changed over the course of two decades, specifically within estate tax thresholds. What was once a threshold of a few hundred thousand dollars per person has now reached the staggering millions. Meaning, what was once planned for in 1997 could mean absolutely nothing in 2017. Further, assigning trustees to your theoretical estate along with executors for a will, aren’t what they once were.
Relationships change over time: spouses leave, adult children are factored in, family members pass away. So that person you once trusted with your entire post-life arrangements may not be your choice for today. Add to that newly minted retirement plans, Social Security, pensions, life insurance policies and investments, and evolution is obvious. Your net worth and assets have hopefully risen over the course of twenty years, or perhaps they’ve even fallen. However, your estate plans should reflect all of it.
Most people aren’t in constant communication with their attorneys and financial advisors, asking them to amend every document as money comes and goes. It’s also not the most exciting thought to be planning for after you’re gone. The preparation, though, is priceless. The greatest defense is to make an annual audit of your net worth, as well the people with whom you place your trust. If anything has changed, inform your counsel. Checking-in every 12 months will ensure that your documents are up to date so that in the event of a major life change, your estate will be protected. Baby boomers were born from an arguably unplanned era, yet their estate should be everything but unplanned.
Below is a list of 10 common pitfalls of an outdated estate plan. If any apply to you it may be advisable to update your plan:
Like the businessperson who financed the new hospital wing or charity worker who devoted his life to building health clinics in a third-world country, each of us has the opportunity to leave a legacy. Similarly, each of us has the opportunity to create a legacy to benefit our family or society. It does not have to be a grandiose pursuit. By engaging in legacy planning, we get to have a say in how we will be remembered. What’s required is dedication to help make life a little bit better and some advance planning.
Legacy stems from the Latin “lēgāre,” meaning to bequeath, pass on or entrust something in the hands of another -- a dignified gesture which has come to mean making a lasting contribution of more than monetary value.
Most people think of legacy planning as gifts left by their parents, such as the family business, the house they grew up in or other prized possessions. But the gifts you value most usually can’t be measured in dollars, such as a work ethic, a sense of family responsibility or generosity and community spirit. These are the gifts we hope to pass to our children. This is the type of legacy that can truly make the difference in how our own children experience wealth.
People often have different feelings about wealth. What took one generation years to achieve may seem trivial to the next. Consider the successful business person who never had the chance to attend college. She may wish to help someone else realize that dream or may never want her own grandchildren to have to make that same sacrifice. One of the first steps in creating your legacy is to express your feelings about wealth and its responsibilities well in advance and make your goals known.
To appropriately plan your legacy, establish a sound plan that identifies objectives and family philosophy. Communicate your values and desires to your family and build a team to help implement and monitor your plan.
Involving a financial advisor can help everyone understand you’re serious about your legacy planning and that you’ll take the necessary steps to formalize your plan which will almost always have financial as well as benevolent ramifications.
A well-structured estate plan should be your first step. This not only takes into account the values and beliefs you hope to pass on but a range of potential tax concerns, gifting, and charitable-giving guidelines, trust and family-foundation considerations. Having a financial advisor structure and manage these aspects can release much of the anxiety that goes into this process and helps ensure that your wishes are honored.