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5 Questions to Consider for Estate Planning in Retirement

Thomas O'Connor
October 18, 2021
I get it. Estate planning is not a fun topic.

But it is important.

There are several benefits associated with estate planning (see picture below), largely dependent on your personal and financial situation – but among them – the one that we believe surpasses them all is that of ensuring family harmony.

Some 35% of American adults say they have personally experienced family conflict or know someone who has experienced family conflict as a result of not having an estate plan or will in place (1).

As a wealth advisor for more than a decade, this is a story I’ve heard far too often. And nobody wants it.

Being intentional with your estate planning is a gift to your loved ones. Planning not only benefits them but can provide a great deal of peace of mind to you, as well.

Consider these five questions below a measuring stick to determine whether you feel your estate planning is on a path to family harmony (or conflict).

Ensuring Family Harmony

N

Reduce Estate Taxes

N

Protect Your Children

N

Maintain Control of your Personal Affairs

N

Incapacity Planning

N

Business Succession Planning

N

Protect Your Assets from Lawsuits, Creditors and Divorces

N

Protect Against Administrative Expense and Delay

N

Asset Protection For Beneficiaries

Are the essential documents in place (and updated)?

Let’s start off with what the essential documents are:

The Will

Specify where and to whom you’d like assets to go at death

The Power of Attorney POA

Allows someone else to manage your assets and make decisions on your behalf in event of incapacity

The Advance Healthcare Directive (Healthcare POA)

Allows someone else to make medical decisions on your behalf

At a minimum, your estate plan should include these documents, as they are needed by everyone regardless of financial situation. The consequences of not having them can be severe, especially given their low costs to establish. In the case of dying intestate (without a will), the courts will appoint the executor and distribute assets and possessions according to state law rather than the person’s wishes.

Once the essential documents are established, we encourage reviewing them about every five years (or sooner if a major life event has occurred) to determine if any changes should be made. We also recommend revisiting these documents anytime Estate laws are changed, as there could be significant impacts to your estate and overall financial plan.

Are your assets subject to Probate?

Probate is the legal process by which the court oversees the settlement of an estate after someone dies.

One problem with the probate process is the amount of time and money (not to mention stress) it can cost. The average probate process can be 8-12 months and cost 2-5% of an estate (2) but in some cases can be much longer and more expensive. Additionally, since probate involves going through the court system it is considered public information, and no longer kept private.

The first way to know if (and how much) your estate is subject to probate is to take inventory of your assets. Ideally, you would have these on an organized Balance Sheet to simplify things.

Once an inventory is taken, the focus turns to the titling and type of asset. For example, IRAs and 401(k)s have named beneficiaries, which allows these accounts to avoid probate. Although, if no beneficiary is named, it can go to the estate which does not avoid probate. For taxable accounts, if it’s an Individual brokerage account, it goes through probate unless it’s labeled Transfer on Death (TOD). A Joint with Right of Survivorship (JTWROS) will avoid probate but a Joint Tenants in Common (TIC) will not.

This is where Trusts can be involved, which many consider an essential within estate planning. One of the purposes of Trusts is to avoid the probate process, thereby saving on costs and keeping things private. There are many types of trusts (each with their own purposes) depending on your situation and goals but that is beyond the scope of this article.

Do you have a giving strategy?

For retirees who are interested in giving assets at some point, whether to loved ones, charities or a combination, a giving strategy can play a key role in your estate plan.

65% of Americans over 55 plan to give away some of their money while they’re alive, 8% plan to give it all away while they’re alive, and 27% plan to give it all away after they pass away. (3)

 

 

To land on a giving strategy, we suggest breaking it down by defining the who, what, where and how.

  • Who do you want to give to? Individuals, charities, or a combination.
  • What will you be giving them? Not all assets are created equally. For example, investments are treated differently based on their tax category (IRAs now have 10-year distribution rules and Taxable assets currentlyhave step up in basis at death)
  • When you would like to give – while living, or at death, or both?
  • How do you want them to receive it? For example, if leaving assets at death to loved ones, it may not be the most prudent to leave them a lump sum; instead, structuring it within a trust could allow for systematic distributions that protects the principal and the beneficiary.

Once your goals are defined, it’s important to know the rules, which are dependent upon the above factors. Additionally, given the complexity of our tax code and laws within your state, these rules are often misconstrued. This is where having the professional guidance of an Estate Attorney is so important as they ensure you stay within the law and take advantage of opportunities for you.

The key is having a strategy (even if it’s very flexible), that aligns with your personal situation and maximizes the impact of your giving.

Estate Tax(1)

Transfer tax rate 40%
Estate tax exemption per person $11,700,000
Gift tax exemption per person $11,700,000
Generation-skipping transfer exemption (per) $11,700,000
Annual gift tax exclusion per person $15,000

Source: IRS.gov (2021 values)

Do you know who your next steward will be (and are they prepared)?

Let’s start by defining the main parties who will be taking on stewardship of your estate at death and their respective responsibilities.

  • Executor – Named in the will, this person settles the estate. They oversee probating the will, locating, and distributing assets, filing tax returns, and paying debts.
  • Trustee – Named by a trust, this person (or corporation) manages the trust assets for the beneficiaries of the trust.

Determining who manages your estate at your death is a weighty decision. Consider filtering your decision making by asking these three critical questions, offered up by Vanilla Estate Planning:

  • Do you trust them to act in your family’s best interest?
  • Are they financially responsible?
  • Are they likely to be alive when you pass away?

A major way to alleviate the burden and stress of this responsibility is to have everything the new steward could need in one centralized document. We call ours the Personal Data & Records Organizer (link here to MS Word Doc). It includes all your personal information, details around arrangements, personal advisor contacts, location of documents, policies, and important papers.

 

Has your Estate Plan been communicated?

If you have done everything else mentioned in this article, your estate planning is in good shape. But if you want to take it from good to great, we recommend communicating it to your loved ones. This allows them to hear it directly from you including your intentions and heart behind the planning. Should they have any questions, you are there to answer them!

If this seems uncomfortable, you’re not alone. I encourage you to fight through it. Transparency removes uncertainty and brings clarity. Remember, the end goal is ensuring family harmony. This can be a very rewarding experience for your whole family and pivotal for achieving your goals.

Give the gift of Estate Planning

74% of American adults believe that estate planning is a confusing topic. (4) It does not have to be. You don’t have to do it alone. It is the job of professionals like wealth advisors and estate attorneys – ideally working together – to simplify the complex, help you clarify your goals, and construct an estate plan that ensures your peace of mind now and your family’s harmony later.

Securities offered through Keel Point Capital, LLC, Member FINRA and SIPC. Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC.  While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given.  Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

Sources:

  1. https://craft.wealthcounsel.com/images/articles/Estate-Planning-Awareness-Survey-2016.pdf?_ga=2.180993383.1913725954.1631802031-782006487.1623873086
  2. https://www.margolisweldon.com/articles/core-estate-planning-documents-pt2
  3. https://images.em.bankofamerica.com/HOST-01-19-2701/ML_Legacy_Study.pdf?_ga=2.202542481.1263297802.1631896064-782006487.1623873086
  4. https://craft.wealthcounsel.com/images/articles/Estate-Planning-Awareness-Survey-2016.pdf?_ga=2.131236239.1263297802.1631896064-782006487.1623873086

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