If you have not already implemented a proper estate plan, then you may be wondering to yourself do you need to bother doing one due to the changes in the tax law?
The major change in the law comes in the form of gift and estate tax exemptions. The exemption went up to $11.2 million per individual in 2018.
When many people think of estate planning, they think of avoiding estate taxes at death. Therefore, when people see that the exemption is at $11.2 million per individual, many will turn off to the idea of doing an estate plan. Don’t be one of those people.
A proper estate plan will be different due to the new tax law change for some, but the need for an estate plan has not gone away.
What Basic Tools Should Every Estate Plan Have?
A will. Everyone should have a will. Without a will the state will dictate who gets your money at death. If you have children who are minors, a will is a must because the will determines who gets custody of the children in the event of a tragic death of both parents (which happens more than you would think).
Legal and medical powers. This is an absolute must for everyone. Legal powers allow someone to be appointed on your behalf to sign documents, cut checks, etc. This is critical so someone can continue to pay bills while you are incapacitated (bills like a mortgage, credit card, etc.). Medical powers dictate how life sustaining care will be provided. So, if you are mentally not there anymore and could be kept alive through life support, through your medical power, your appointee could direct a care giver to stop giving care which would let you pass.
Trusts. Living trusts, marital trusts, and A&B trusts (all are the same) are vital to any estate plan. Without a trust, your estate upon death will be probated. Probating an estate through the court system is expensive and there is no privacy. Assets owned by a trust avoid the probate process which saves heirs time, money, and headaches.
For those who have or will have estate tax problems, trusts, when designed correctly, will maximize the $11.2 million per person exemption (meaning a married couple will be able to pass $22.4 million to their heirs without estate taxes).
Advanced Planning Tools
For those who have large estates, the use of Limited Liability Companies (LLCs) or Family Limited Partnerships (FLPs) can be used to discount the value of the estate for gifting as well as estate tax valuation purposes.
LLCs and FLPs can also be useful tools inside IRAs to control assets from the grave. If this concept intrigues you, let us know and we will forward you a newsletter on this topic.
The bottom line is that everyone should have the basic estate planning tools in place regardless of the size of estate you have. Waiting will only cause you and/or your heirs' grief, so don’t put it off.
If you would like help designing a proper estate plan or if you would like help designing a proper financial plan to meet your retirement planning goals, please get in touch and we can set up a time to go over your situation.