Do I Need an Estate Plan?
Do I Need an Estate Plan?

Should I update my beneficiaries, executor, or Power of Attorney? Do I really need an estate plan? Why should I create an estate plan? Odds are, you have asked yourself at least one of these questions as you ponder yours and your family’s future. It is vital that we ask ourselves these questions because an estate plan can provide your family with some assurance and confidence as they cope with your passing. Three estate planning areas you should review include: (1) beneficiaries and family dynamics, (2) wealth conservation and transfers, (3) public probate vs. private records.

Have you recently gotten married, gotten divorced, had an addition to your family, or had a relative pass away? It’s easy to forget to review and update your beneficiaries when going through a life event such as these. We recommend that you periodically review your beneficiaries to ensure that your assets will be left to the person you intend. Sometimes family dynamics and relationships change, causing your estate plan to become outdated. Or you may have a family member that you don’t want to overspend and thus deplete their inheritance quickly. Or there may be a person who’s inheritance you want to protect from other family members. Periodically reviewing your beneficiaries is the first step.

In addition to reviewing your beneficiaries, you will want to evaluate how your estate will be transferred. Will your assets be transferred simply through beneficiary designations and transfer/payable on death registrations?are great first steps, but as your wealth grows and your family changes, it may be time to implement a more strategic plan. Creating a trust can not only give you the control to dictate how your assets are inherited but can also control how they are spent and who has access to them. Additionally, as your wealth grows, you will want to be cautious of the estate tax liability you may create for your heirs. Estates that are larger than $12.92 million will incur an estate tax (1). However, this is set to “sunset” at the end of 2025 and revert back to approximately $5.5 million (subject to inflation) (2). Exceeding this threshold could be more likely than you think depending  on your assets and their appreciation.  If your estate is larger than this exemption amount at your passing, your heirs could incur a tax liability that would eat into their inheritance and any legacy goals you had planned.

Lastly, whether large or small, your estate and assets could be made public record without proper planning. Finances are one of the most private aspects of an individuals’ life, but without beneficiary designations and proper estate planning in place, your assets will go through probate and become public record. These simple steps discussed above can help you limit your public exposure and achieve your estate planning goals.

 

Sources:

  1. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
  2. https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting#:~:text=Unless%20Congress%20makes%20these%20changes,exemption%20(adjusted%20for%20inflation).