Estate planning is important for all of us, not just for the wealthy. That's why Attorney Keith McManus appears every week on SHP Financial's Retirement Road Map show to talk about estate planning and how to take advantage of the benefits of having a trust.
November is a good time to talk about financial planning strategies with an eye to improving your financial situation before the end of the year. Andrew Garcia, who is of counsel for McManus Estate Planning, talks with Derek about reducing tax liability. We look at a client's portfolio with an eye to reducing taxes. One strategy is gifting. The federal government allows all of us to make a gift to another person of up to $15,000 a year—without having to report it to the IRS. (Gifts over $15,000 must be reported to the IRS, even though no one pays tax at the present time.)
How Real Estate Is Titled
If you own a property, it's important when you're building your estate plan, to see the benefits of how you're going to title that property. Who is going to own it? Are you going to own it? Or is it going to be owned with a life-estate deed or by a trust? Andrew Garcia, who is of counsel for McManus Estate Planning, talks with Derek about real estate. There can be huge pitfalls involved when property is not titled properly, one of which is disruption of family harmony. Without a living trust, a property can be tied up in litigation among surviving family members, which costs time as well as money. When planning is done correctly, things move smoothly.
Prepare for Estate Planning
Once you've decided to set up an estate plan, you'll want to prepare for your first appointment with your attorney, who wants to create a custom estate plan for you. Before the appointment, talk with your family members about what each of you would want to happen if you became incapacitated or died. These family conversations may be especially important for couples who marry later in life or have blended families. Another important consideration involves having the attorney know who the beneficiaries are for insurance policies, retirement accounts, and other assets to avoid unpleasant surprises in the future (such as a former spouse being the beneficiary because it wasn't changed after a divorce). Your estate planner and financial advisor can help you create a list of assets that will be needed to create your plan.
Does Your Financial Advisor Know Your Estate Plan?
If you've created a trust or estate plan with your attorney, you may want to share that information with your financial advisor. Not all financial planners will broach the subject of estate planning with a client, which does the client a disservice. When an estate-planning attorney creates a trust, there will be a plan for funding the trust. The financial advisor can then follow the plan to fund the trust properly with the assets managed by the financial advisor. Your attorney and financial planner can work together to be sure that all assets are included in the trust to ensure they pass easily to your heirs without a heavy estate-tax burden.
What Is Your "Why"?
Today's episode looks at a reason for creating an estate plan. A client, an older woman whose husband had died, came to him for an estate plan that would benefit her disabled son. Setting up a trust meant that when she recently died, her assets passed to her son probate-free and tax-free, and an independent professional trustee, not a relative, was in place to manage the assets for the son's benefit.
Protecting Assets from Nursing Home Costs
Investment advisers often make their money by selling mutual funds, annuities, and other investments, so they are not always the right people to turn to when seeking advice on the future funding of nursing home care. Part of your estate-planning process should be devoted to protecting your assets from being eroded by the cost of long-term care. Be sure to talk to your attorney as well as your financial adviser for advice on the right way to plan for your financial well-being throughout retirement.
Estate Planning Should Be Multigenerational
People try to do the right thing by setting up estate plans, but they don't always think through the possibilities. It may seem like a good idea to name your parent as a beneficiary of an insurance policy to care for your minor child in the event of your passing. But an aging parent might need care, and if there is no long-term care insurance or other assets to pay for it, the state would insist upon the use of the insurance funds. Consulting an estate-planning professional can help to ensure your assets are used the way you want them to be.
Gifts Can Benefit Your Estate
When you are creating or updating your estate plan, consider gifting assets. Among the benefits to you as donor are those related to taxes. The federal tax code allows for tax benefits, but gifting can be a risky move if you do it without consideration of all sides of the issue. To maximize the benefits to yourself, your estate, and the donee (the person to whom you are gifting an asset), consult both your financial adviser and the attorney who is helping you create your estate plan.
Have You Considered Appointing a Trust as a Contingent Beneficiary?
Your financial planner may be first rate at growing your assets. But to do the best job for you and your investments, that person also needs to consider your estate plan, including your beneficiaries. Naming minor children as beneficiaries carries substantial risks. It might lead to a conservatorship, which is a process that works itself out in the Probate Court system. There may be better ways for you to designate beneficiaries for these kinds of accounts.
A good financial planner will work together with your estate planning attorney. Ideally, all your advisors would be in communication and on board with your estate plan. Your investment planning is closely linked to the success of your estate plan. Many people who come to see us do not have estate plans that are linked to their financial plans, but this sort of coordination increases the chance all plans will succeed at their goals.
Estate Taxes: Massachusetts
In this segment, we discuss the example of a family that owned property in two states: Florida, which has no estate tax, and Massachusetts, which taxes estates with a net value exceeding one million dollars. They could save money for their estate by creating the right kind of trust plan. It's important to work with a financial planner and an estate-planning attorney who know the tax laws for the state in which property is held.
How Do You Own Your Assets?
Whether you own property jointly with a business partner or spouse, or as an individual with sole ownership, it's a good idea to evaluate the form of ownership that will save you and your heirs from undue tax liabilities and other legal considerations.
Does Life Insurance Fit Your Plan?
You don't have to be very wealthy to have an estate worth a million dollars. Someone who has, for example, a $300,000 house, an IRA worth $400,000, and not much else in assets would seem to be well below the threshold for an estate tax burden. But if you add a million-dollar life insurance policy, the heirs of the estate will be liable for Massachusetts and federal estate taxes unless the policy is owned by an irrevocable life insurance trust.
What a trust can do
Many people don't understand what a trust is and how it can benefit their heirs. Estate planning is important, especially if an estate tops a million dollars (which is a surprisingly easy mark to reach when you consider all property, cash, savings, and insurance payouts). You should work with your financial adviser and estate-planning attorney to set up a trust that will ensure probate avoidance; minimize capital gains and estate taxes (both of which can take a significant bite out of assets); and protect the assets for your heirs.
Act Now if You Have a High Net Worth
How often do you have an estate plan review? If you have a high net worth, and you're paying someone to manage your money, you have a right to expect more services, including an analysis of your estate's tax liability. Keeping in mind the expectation that tax laws will change after the end of this year, this is the time to ensure that you won't be leaving your heirs with a large tax bill along with your estate.
Don't Let Your Trust Sit Empty
In order to avoid probate court, you will want to be sure that all of your inheritable assets are placed in the trust. One of the biggest mistakes people make when planning their estates is neglecting to have their attorneys move their assets into the trust. You will also want to have your plan, and any trusts, reviewed on a regular basis by an estate-planning specialist.all of your assets.
What Is a Trust, and
Why Do I Need One?
A trust is a legal instrument that can provide benefits to everyone, not just those of considerable wealth. Where a will needs to go through the probate process, which can take many months, assets placed in a trust pass to the beneficiaries without the time and expense of probate.