Steps for Success with Your Estate

Planning for your estate is an essential step to ensure that an individual’s assets are distributed as they would like once they pass. While there is no perfect time to begin estate planning, it never hurts to start early and gradually build plans over time.

“Nearly half of Americans wait until after they are 55 years to start estate planning and its importance is often underestimated,” says attorney Paul Yokabitus of Cary Estate Planning. “While estate planning might not have an age requirement, it can be beneficial to start as soon as possible, especially if a person is near retirement or has recently retired.” If you are looking to begin planning, consider the tips below to help you ensure that your estate is in order and accurately reflects your wishes.

Prepare a Will and Testament

Perhaps one of the most standard yet fundamental steps in planning an estate is to prepare a will and testament. A will gives a person the power to specify how assets will be managed and allocated upon their passing, therefore only becoming operable after death.

In order for a will to be carried out and enforced, an executor must be designated to administer the asset distribution as detailed in the will. If the estate is simple, this can be handled by a friend or family member. More complex estates may require a professional executor. In North Carolina, wills must go through the court system’s probate process before assets are formally distributed.

Establish Revocable and Irrevocable Trusts

In estate planning, people may choose to establish revocable living trusts and irrevocable trusts. These trusts are best used for when a person is looking to avoid the probate process and protect their assets.

A revocable living trust allows for the ownership of assets to be transferred to a private entity, or a trust outside of court. These trusts are flexible in that they can be amended or revoked at any time, allowing the trust creator to designate themselves as the trustee to manage their assets during their lifetime and list beneficiaries as trustees for once they pass. Additionally, spouses or successor trustees can be appointed to the trust during the creator’s lifetime, giving them the authority to step in and manage the trust in the event the creator becomes incapacitated.

Yet for those looking to establish trusts with greater tax benefits and stronger asset protection, irrevocable trusts may be a better option. Once an irrevocable trust has been established, the terms are set and cannot be altered. This means the creator no longer has control of the assets and instead ownership is passed to the trustees listed. By voluntarily giving up control of these assets, the creator can benefit from the tax exemptions and avoid predatory creditor claims on the funds, better protecting them for future heirs.

Review Existing IRA Investments

As a person ages, it is common to have an individual retirement account (IRA) as an investment tool, and it may include stocks, bonds, exchange-traded funds, or mutual funds. IRAs are tax-advantaged and encompass a few different types, yet the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act by Congress in 2019 limited the capabilities of traditional IRAs.

This new act may negatively impact estate plans, as it no longer allows beneficiaries to “stretch” the distribution of their inherited IRA over the course of their lifetime. Instead, non-spouse beneficiaries are now limited to a ten-year period in which they may receive these assets.

If a person’s estate plan includes an existing IRA, they may need to review it and make alterations in order to accommodate the SECURE Act and ensure that beneficiaries receive their designated assets within the proper time frame.

Leverage Exclusions and Exemptions

There are a number of exclusions and exemptions that individuals may want to take advantage of when establishing their estate plan to reap maximum tax benefits. A common exclusion that may be used is the gift tax, which allows a person to give up to the maximum gift tax exclusion amount without incurring a gift tax. The maximum amount is currently $15,000 per person and helps individuals save nearly 40% on such gifts. If an individual gifts over this amount, they are required to file a gift tax return and can expect to pay the corresponding tax rate on it.

Individuals may also look to leverage the lifetime gift exemption while exemption rates are high. This exemption is best used on assets that are expected to appreciate. This can help individuals pay less in estate taxes than they would if they held onto the appreciated asset until they passed.

Outline Long-Term Health Care and Financial Wishes

An estate plan should also include directions regarding a person’s wishes for their long-term care in the event they become incapacitated. This is typically done by appointing someone such as a trusted friend or family member as the medical power of attorney. The individual appointed is the one who will work directly with medical personnel to make decisions regarding medical care and treatment to ensure that your health wishes are followed.

Similarly, it may also be useful to appoint a financial and legal power of attorney to act on your behalf regarding legal or financial matters. This appointment can be limited to only particular aspects or it may be all-encompassing, depending on the estate owner’s wishes. This can help to avoid drastic interruptions to a person’s financial affairs.

Organize Estate and Keep Beneficiaries Up-to-Date

Upon a person’s passing, there likely will be many legal and clerical affairs that will have to be settled before the estate can be relinquished. In order to make this a smooth process, it is helpful to keep any estate-related documents organized to assist heirs and inform beneficiaries of their status in your estate.

Additionally, it is important to keep in mind that estates valued at more than $5.45 million can expect to pay the federal estate tax, and estate creators may want to allocate funds aside specifically for this.

Deciding if You Need an Estate Planner?

Remember, estate planning does not end once a will is drawn up and often entails many more aspects to best situate you and your estate for future generations. There ultimately is no estate planning template and each plan is unique to every individual. Therefore, discussing your assets and plans with an advisor may help to ensure that all affairs are in order and that you are leaving behind no loose ends.

Furthermore, if the estate is complex, a knowledgeable estate planner may be even more helpful in organizing assets and outlining your wishes to ensure that they are followed upon your passing.

If you have any questions, please ask below!