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Estate Planning Blog

Serving Clients Throughout North Central Missouri

Retirement Planning

Life Insurance and Estate Planning

The Importance of Incorporating Life Insurance into Your Estate Plan

Life insurance is a pivotal component of a comprehensive estate plan. Integrating life insurance policies into estate planning can provide financial security for your heirs and ensure that your estate is distributed according to your wishes. When used effectively, life insurance can solve a range of estate planning challenges, from providing immediate cash flow to beneficiaries to helping cover estate tax liabilities.

Incorporating life insurance into your estate plan requires careful consideration of the type of policy that best suits your needs, whether term life insurance for temporary coverage or whole life insurance for permanent protection. It’s essential to understand the insurance company’s role in managing these policies and ensuring that they align with your overall estate objectives.

How Can Life Insurance Be Used in Estate Planning?

Life insurance can play a crucial role in estate planning. It can provide a death benefit to cover immediate expenses after your passing, such as funeral costs and debts, thereby alleviating financial burdens on your heirs. Furthermore, life insurance proceeds can be used to pay estate taxes, ensuring that your beneficiaries receive their inheritance without liquidating other estate assets.

When selecting life insurance for estate planning purposes, it’s important to consider the different types of policies available, such as term insurance for short-term needs and permanent insurance for long-term planning. An insurance agent can be a valuable resource in this process, helping to determine the right policy type for your estate planning goals.

Choosing the Right Beneficiary for Your Life Insurance Policy

Designating the appropriate beneficiary is crucial in using life insurance for estate planning. The beneficiary should align with your overall estate plan, ensuring the death benefit supports your intended estate distribution. Reviewing and updating your beneficiary designations regularly is vital, especially after significant life events like marriage, divorce, or the birth of a child.

Heirs named as beneficiaries will receive the insurance death benefit directly, which can provide them with immediate financial support and help them manage any inheritance or estate inheritance they receive from your other assets.

The Role of Life Insurance Trusts in Estate Planning

Life insurance trusts, particularly irrevocable life insurance trusts (ILITs), play a significant role in estate planning. By placing a life insurance policy within a trust, you can exert greater control over how the death benefit is distributed among your beneficiaries. The trust owns the policy, removing it from your taxable estate and potentially reducing estate tax liabilities.

An irrevocable trust is especially beneficial since it ensures that the proceeds from the life insurance policy are used according to the terms you’ve set, such as funding a trust for a child with special needs or providing for a specific heir.

The Benefits of Irrevocable Life Insurance Trusts

An irrevocable life insurance trust (ILIT) offers several benefits in estate planning. Since the trust is irrevocable, it provides a layer of protection against creditors and legal judgments, ensuring that the life insurance payout is used solely for the benefit of your designated beneficiaries.

Setting up an ILIT requires careful planning and adherence to legal guidelines. The trustee you appoint will manage the trust and oversee the life insurance death benefit distribution according to your specified terms.

Estate Planning with Different Types of Life Insurance

Understanding the different types of life insurance is crucial in estate planning. Term life insurance offers coverage for a specified period and is often used for short-term estate planning needs, such as providing financial support to minor children. On the other hand, permanent life insurance policies, like whole life or universal life insurance, offer lifelong coverage and can build cash value over time, which can be an asset in your overall estate.

When considering life insurance in estate planning, it’s important to evaluate how the death benefit of a life insurance policy will impact your estate’s overall financial picture and the inheritance your heirs will receive.

Life Insurance and Federal Estate Tax Considerations

Life insurance can be a strategic tool in managing federal estate tax obligations. The proceeds from a life insurance policy are typically not subject to federal income tax. However, they can still be included in your gross estate for estate tax purposes, depending on the ownership of the policy.

To minimize estate tax impact, you might consider establishing an irrevocable life insurance trust, which removes the policy from your taxable estate. This strategy can be particularly effective in estates approaching or exceeding the federal estate tax exclusion limit.

How Life Insurance Can Help Pay Estate Taxes

One of the primary uses of life insurance in estate planning is to provide funds to pay estate taxes. This is especially relevant for larger estates that may face significant federal and state estate taxes. The death benefit from a life insurance policy can be used to cover these taxes, ensuring that your heirs do not have to liquidate other estate assets to meet tax obligations.

In planning for estate taxes, working with professionals, such as estate attorneys and tax advisors, is essential to ensure that your life insurance coverage aligns with your anticipated tax liabilities.

The Role of Life Insurance in Providing for Heirs and Beneficiaries

Life insurance can offer substantial financial support to your heirs and beneficiaries upon your passing. Whether providing for a spouse, children, or other dependents, life insurance can ensure that your loved ones are cared for financially. This is particularly important in cases where other estate assets are not readily liquid or if you wish to leave a specific inheritance to certain beneficiaries.

When selecting life insurance for this purpose, consider the needs of your heirs, their ability to manage a large sum of money and how the death benefit will complement other aspects of your estate plan.

Summary: Key Points to Remember in Life Insurance and Estate Planning

  • Life Insurance as a Financial Tool: Understand the different types of life insurance and how they fit into your estate plan.
  • Beneficiary Designations: Regularly review and update your beneficiary designations to align with your estate planning goals.
  • Life Insurance Trusts: Consider using irrevocable life insurance trusts to control the distribution of your life insurance proceeds.
  • Federal Estate Tax Planning: Utilize life insurance to address potential estate tax liabilities, especially in larger estates.
  • Providing for Heirs: Choose the right life insurance policy to ensure that your heirs are financially supported according to your wishes.

In conclusion, life insurance plays a vital role in comprehensive estate planning. By carefully selecting the right type of policy, designating appropriate beneficiaries and considering the use of trusts, you can ensure that your estate plan effectively addresses your financial goals and provides for your loved ones after your passing.

estate planning for Married Couples

Do You Need a Power of Attorney as Part of Your Estate Plan?

When created by an experienced estate planning attorney, a Power of Attorney (POA) is a legally binding estate planning document providing the person (principal or grantor) the ability to appoint someone else to act on their behalf in legal and financial matters. A POA can be created for any adult, according to the article “Choose wisely when selecting an agent for a power of attorney” from News Tribune.

POAs are generally state-specific, meaning they must adhere to the state’s laws where the grantor is a resident and follow their state’s law. The laws differ from state to state, so a local estate planning attorney is necessary.

The POA is usually created as part of a comprehensive estate plan. It’s best to do this before a person becomes ill or when a disability occurs. Everyone should have a POA, so someone else can manage their affairs if needed.

The person assigned to represent the grantor is known as an “agent” or an “attorney-in-fact.” They serve as an agent under the terms of a POA.

There are several different types of POAs. Some become effective the moment they are executed, which means they are signed with the required witnesses present. Others spring into effect upon a specific event or an expressed date identified in the POA and are called “Springing POAs.”

Some POAs are used for short-term situations, such as if a person is undergoing surgery and won’t be able to take care of their own business for a period of time. Regardless of the length of time, the agent is a fiduciary, meaning they are required by law to put the grantor’s interests ahead of their own. They need to be responsible, trustworthy and a good communicator. They must be 18 or older.

An estate planning attorney will help you determine whether the person you are considering naming your agent is a good choice. Someone who is a convicted felon, suffers from chronic financial issues, or is unable to manage their own life successfully is not a good candidate. Making this choice wisely avoids many future difficulties. For many people, their agent is a parent, adult child, or close family friend.

A very important step in the process is to ask the person ahead of time if they are comfortable acting as an agent on your behalf.

You may appoint multiple people to serve as your agent. However, to avoid possible conflict; it would be wise to have the POA documents express specific responsibilities for each person. If the agents disagree, it will be difficult for them to get tasks completed.

There are several types of POAs, and their powers are enumerated in the document. A general, durable, or limited POA includes financial and healthcare POAs. A durable POA is in effect whether the person is alive and well or incapacitated. A Limited POA can be used to give someone a specific purpose. The healthcare POA is used to make medical decisions on behalf of the grantor.

A health emergency is not the time to discover you don’t have a healthcare POA. Without a POA, family members or loved ones must go to court to obtain authority to address financial matters and make medical decisions. Instead, have your estate planning attorney create the POA documents needed to meet your needs.

Reference: News Tribune (Jan. 8, 2024) “Choose wisely when selecting an agent for a power of attorney”

Moberly, MO

Is Your Estate Plan Ready for Sunsetting Tax Cuts in 2026?

Many of these changes are set to expire at the end of 2025, meaning the time to prepare for their impact on estate plans is now, according to the article “These Tax Cuts are Sunsetting in 2026. Are your clients ready?” from Think Advisor.

The most visible change will be the lifetime estate and gift tax exemption changes. Before 2018, the exemption was $5 million per person and $10 million for a married couple. In 2023, those limits were $12.92 and $25.85 million, respectively. In 2024, those limits are $13.61 million for an individual and $27.22 million for a married couple.

The annual gift tax exclusion was also increased because of the TCJA. In 2023, it was $17,000; in 2024, it is $18,000. It’s not yet clear what it will be after 2025.

Unless something changes, on January 1, 2026, the estate tax exemption will revert back to $5 million; adjusted for inflation, it’s expected to be approximately $7 million per person.

There won’t be much of an impact for estates that won’t exceed the expected 2026 levels. However, the increases in farmland and home values may bring some unexpected increases to the size of many estates.

For those whose estates exceed the 2026 exemption levels, there are many options to reduce the size of the estate to minimize the impact of the lower exemption levels on their heirs in the future. An experienced estate planning attorney can make a strategic plan to address these changes.

One option is to spend down part of the estate, especially if you are older. Now would be the time to travel or make purchases you might have been putting off.

Making lifetime gifts is another way to reduce the size of your estate, while enjoying watching heirs enjoy their inheritance. Gifts could be to children, grandchildren, or others.

The same generosity could be focused on charity. If you’ve been meaning to make a gift at some point, this could be the year to make a legacy gift.

Another tactic: a Roth conversion. If your retirement accounts consist of IRAs, converting to a Roth can help with tax diversification. Money in a Roth is not subject to Required Minimum Distributions, which reduce taxes during retirement. Under the SECURE 2.0 Act, inherited Roth IRAs are tax-efficient for leaving an IRA to non-spousal beneficiaries.

The TCJA increased the standard deduction level, making it difficult for many taxpayers to itemize deductions. The higher standard deduction will revert back to roughly the pre-TCJA levels, which were $6,350 for single filers and $12,700 for those filing married and joint, both indexed for inflation.

Speak with your estate planning attorney to determine how the sunsetting of this law will impact your estate plan and choose your best options in the short and long term.

Reference: Think Advisor (Nov. 22, 2023) “These Tax Cuts are Sunsetting in 2026. Are your clients ready?”

elder care

The Difference Between Power of Attorney and Guardianship

Navigating the intricate landscape of elder law can be daunting, especially when faced with the decision between guardianship and power of attorney for elderly parents. This article sheds light on the difference between guardianship and power of attorney, providing clarity on which approach might be the best fit for your family’s unique situation.

What Exactly Is a Power of Attorney?

A power of attorney is a legal document that empowers an individual, often referred to as the “agent” or “attorney-in-fact,” to act on behalf of another, known as the “principal”. This authority can span a myriad of areas, from handling financial matters to making pivotal medical decisions.

  • Deciphering the Power of Attorney Document: The power of attorney document delineates the extent of the agent’s authority. For instance, a medical power of attorney focuses on health care decisions, while a financial power of attorney pertains to managing financial assets, like bank accounts.
  • The Significance of Durable Power of Attorney: This variant of power of attorney remains valid even if the principal becomes incapacitated due to conditions like dementia or Alzheimer’s disease. It’s imperative that this durable power of attorney must be prepared with precision, ensuring the agent’s ability to act remains unaffected by the principal’s mental state.

Guardianship: An Overview

Guardianship establishes a legal relationship where a guardian is court-appointed to make decisions for someone unable to do so themselves.

  • Guardianship Proceedings: Initiating guardianship requires one to file a petition in the probate court. If the court ascertains that the individual is no longer able to care for themselves or their assets, it may appoint a guardian.
  • Differentiating Guardian of a Person from Guardian of an Estate: While the former is tasked with personal and medical decisions, the latter oversees financial matters. The guardian’s responsibilities, whether it’s a duty to provide care or manage financial assets, hinge on the terms of the guardianship.

Power of Attorney or Guardianship: Which Path to Choose?

The choice between power of attorney and guardianship is contingent on the specific needs of the elderly individual.

  • Comparing Decision-Making Power: Both the agent (under power of attorney) and the guardian have a shared duty to provide for the best interest of the individual. However, a guardian typically possesses a more expansive level of decision-making power.
  • Flexibility and Autonomy: With a power of attorney, the principal gets to choose the person who will act on their behalf. In contrast, in a guardianship proceeding, the court has the final say, which might not always resonate with the individual’s preferences.

When Is Guardianship the Answer?

Guardianship becomes indispensable when an elderly parent is incapacitated and lacks a power of attorney.

  • The Process of Seeking Guardianship: If there’s a belief that an elderly parent is vulnerable, it becomes imperative to file a petition for guardianship. Consulting an elder law attorney can streamline the guardianship proceeding.
  • Guardianship vs Power of Attorney Post-Incapacitation: In the absence of a durable power of attorney, guardianship emerges as the sole recourse if an individual becomes incapacitated.

Can Power of Attorney and Guardianship Coexist?

Indeed, it’s possible to have both mechanisms in place, although their interplay can be intricate.

  • Roles and Boundaries: An adult child might be designated as the agent for financial matters under a power of attorney, while a professional guardian could be entrusted with medical decisions.
  • Harmonious Operation: Both the agent and guardian must act in the best interest of the individual, ensuring their comprehensive well-being.

Making the Right Choice for Your Family

Deciding between power of attorney and guardianship demands careful contemplation.

  • Engage with an Elder Law Attorney: Their expertise can offer tailored guidance, helping you traverse the complexities of elder law.
  • Factor in the Elderly Parent’s Desires: Their voice is paramount in the decision-making matrix, ensuring that their autonomy and dignity are preserved.

Key Takeaways:

  • Power of Attorney is a legal instrument allowing individuals to designate someone to act on their behalf.
  • Guardianship is a court-sanctioned role for those incapacitated and unable to make decisions autonomously.
  • The distinction between the two hinges on the individual’s circumstances and the extent of decision-making power required.
  • Both mechanisms can coexist, though their roles might differ.
  • Engaging with an elder law attorney is pivotal to making an informed decision tailored to your family’s needs.
Approaching Retirement

When to Update Your Will: 8 Reasons You May Need to Revisit Your Estate Plan

Updating your will is not just a one-time event. It’s an ongoing process that ensures your estate plan remains relevant and effective. In this article, we’ll delve into the times when you should update your last will and testament and the reasons that can make it necessary. Therefore, if you’re someone who can make a difference through charity or simply want to ensure that your estate planning documents are up-to-date, read on!

Why Should You Update Your Will?

Your will is a reflection of your wishes at a particular point in time. However, as life evolves, so might your desires and circumstances. Regularly reviewing and amending your will ensures that it accurately represents your current wishes.

What Life Events Necessitate a Will Update?

Life is unpredictable, and major events can significantly impact your estate plan. Here are some common reasons:

Have You Recently Married or Divorced?

A change in marital status is a significant life event that necessitates a will update. Whether you’ve recently married or divorced, it’s essential to review your estate planning documents to ensure that they reflect your new circumstances.

Do You Have Children or Grandchildren?

The birth or adoption of children or grandchildren is a joyous occasion. It’s also a time to update your will to include them as beneficiaries or make provisions for their care.

Have You Moved to a New State?

State laws can vary significantly, and moving to a different state can have an impact on how your will is executed. If you’ve moved or are planning to move, it’s crucial to ensure that your will complies with the laws of your new state.

Changes in Your Financial Situation?

A significant increase or decrease in the value of your estate can affect your estate tax obligations. Regularly reviewing your will ensures that your assets are distributed according to your wishes.

Have You Acquired New Assets?

Whether it’s property, investments, or personal items, new acquisitions should be reflected in your will. Regular updates ensure that you have accounted for all your personal property.

Changes in Tax Law?

Tax laws can change, and these changes can impact your estate tax obligations. Staying updated ensures that your heirs won’t be burdened with unexpected taxes.

Do You Want to Change Your Executor?

The executor of your estate plays a crucial role in ensuring that your wishes are carried out. If your relationship with your current executor has changed, it may be time to appoint someone new.

Have Your Beneficiaries’ Circumstances Changed?

Life changes can also affect your beneficiaries. Regularly reviewing your will ensures that your assets are distributed in a way that best supports them.

In Conclusion:

Remember these key points:

  • Regularly review and update your will, especially after major life events.
  • Ensure that your will complies with the laws of your state.
  • Keep track of your assets and ensure that they’re accurately reflected in your will.
  • Stay updated on tax laws to protect your heirs from unexpected burdens.
  • Choose an executor you trust who is also capable of carrying out your wishes.

By keeping your will updated, you’ll have peace of mind knowing that your wishes will be honored and loved ones protected.

FAQ

What is an estate plan?

An estate plan is a set of legal documents that outlines how your assets will be managed and distributed after your death. It includes your will, power of attorney and healthcare directives.

What is a beneficiary?

A beneficiary is a person or entity who will receive your assets or benefits upon your death. They can be individuals, such as your children or grandchildren, or organizations, such as charities.

What is an executor?

An executor is the person you appoint to carry out the instructions in your will and manage your estate after your death. They will handle tasks such as paying debts, distributing assets and filing tax returns.

What is estate tax?

Estate tax is a tax imposed on the transfer of assets from a deceased person to their heirs. It is based on the value of the estate and can reduce the amount of inheritance your beneficiaries receive.

How often should I update my will?

It is recommended that you review and update your will every three to five years, or whenever there is a significant change in your life or financial circumstances.

Do I need to update my will if I have a blended family?

Yes, if you have a blended family, it is important to update your will to ensure that your assets are distributed as you intend. This may mean revising beneficiaries or making additional provisions for stepchildren.

Do I need to be an estate planning attorney to update my will?

While it is not necessary to be an estate planning attorney to update your will, it is recommended to consult with one to ensure that your changes are legally valid and properly executed.

personal injury

Can You Amend a Will or a Trust?

It’s the rare person who puts their estate plan together once and never needs to change some part of it. What is important is to understand how to make changes effectively and legally to a will or a trust so these changes are enforceable and your wishes are followed. A recent article from Coeur d’Alene/Post Falls Press, “Amendments to your estate planning documents require certain steps,” explains how an estate planning attorney ensures that your requested changes are made properly.

All too often, people come to their estate planning attorney’s office with handwritten edits and changes to the original language, thinking their notes and a signature or their initials will make the changes legitimate. This is never a good idea.

People also arrive at their attorney’s offices with handwritten addendums written on the front or back of a will or trust document, attached by a staple or paper clip after the original document has been signed. This doesn’t work either.

These approaches create problems because they don’t meet state requirements for a legally valid amendment to a will or trust.

There are two ways to make legally enforceable changes to a will. One is replacing the prior document with an entirely new will document. This new will must explicitly state in the document that all prior wills are revoked and replaced.

The second is to add a document known as a codicil to the old will to clarify exactly which part of the old document is being changed. It typically reaffirms the unchanged other terms of the old will document.

Legally enforceable changes to trusts are similarly done in one of two ways. The first is to replace the prior trust document with an entirely new trust document, although the name and creation date of the trust must remain the same and must state explicitly this is not a revocation of the trust. This is referred to as a trust restatement.

The second way to change a trust is using a trust amendment, which is similar to a codicil of a will. A trust amendment is a new document added to the existing trust document. It states which parts of the original trust document are being changed.

It’s important to speak with a local estate planning attorney about making changes to wills or trusts because each state has its own technical requirements for a will codicil or trust amendment/restatement, which must be followed so the changes will be legally effective.

Just writing on the existing pages of a will or trust never meets the requirements but certainly ensures that there will be major post-death disputes among family members and interested parties. An estate planning attorney can help with any modifications, whether they are large or small, to your will or trust.

Reference: Coeur d’Alene/Post Falls Press (Oct. 25, 2023) “Amendments to your estate planning documents require certain steps”

elder law

How to Liquidate Assets after a Loved One’s Death

The loss of a loved one is a difficult time, often compounded by the necessity of addressing estate settlement and the liquidation of assets. In this guide, we’ll explore the key steps involved in liquidating assets after death, focusing on estate settlement processes and related legal considerations.

Understanding the Role of the Executor in Estate Settlement

The estate executor, appointed either by a will or a court, plays a pivotal role in the estate settlement process. They’re responsible for gathering and appraising the deceased’s assets, paying debts and taxes and distributing the remaining assets to the beneficiaries.

Executor’s Responsibilities:

  • Inventory assets.
  • Appraise the estate’s value.
  • Pay off debts and taxes.
  • Distribute assets to beneficiaries.

Probate: What Does It Entail?

Probate is the legal process through which a deceased person’s will is validated and their estate is administered. This process ensures that debts are paid, and assets are distributed according to the will or state law.

Key Aspects of Probate:

  • Validating the will
  • Settling debts
  • Distributing assets as per the will or law

How to Liquidate Assets: A Step-by-Step Guide

Liquidating assets involves converting the decedent’s properties into cash. This could include selling real estate, stocks, or personal items.

Steps for Liquidation:

Appraise Asset Values:

  • The first step in liquidating assets involves accurately appraising their value. This process is crucial to ensure that the assets are sold for their true worth and to prevent underselling.
  • Appraisals should be conducted by qualified professionals specializing in the asset type being appraised. For instance, real estate should be appraised by a licensed real estate appraiser, while valuables like jewelry, art, or antiques may require an appraiser with expertise in those specific areas.
  • Accurate appraisals not only provide a clear idea of the estate’s total value, which is necessary for both estate settlement and tax purposes, but also guide the pricing strategy when these assets are put up for sale.

Find Buyers or Auctions for Sale:

  • Once the assets have been appraised, the next step is to find the most suitable method to sell them, which could involve direct sales to buyers or utilizing auctions.
  • For unique or high-value items like artwork, jewelry, or collectibles, auctions can effectively reach specialized buyers willing to pay a premium. Auction houses or online auction platforms can be used, depending on the nature of the asset.
  • For more common assets like real estate or vehicles, finding buyers directly through real estate agents, online marketplaces, or advertising in relevant media might be more efficient.
  • The choice between direct sale and auction often depends on the asset type, the time available for sale and the desired balance between obtaining the best price and selling the asset quickly.

Complete the Sales and Gather Proceeds:

  • Completing the sales involves several steps, from negotiating terms to finalizing transactions and transferring ownership. This process must be handled carefully to ensure legal compliance and the protection of all parties’ interests.
  • It is essential to have clear, written agreements detailing the terms of the sale, especially in private sales. These agreements should outline payment terms, transfer of ownership and any warranties or guarantees.
  • Once the sale is complete, the proceeds must be collected and managed properly. This might involve depositing funds into estate accounts and keeping detailed records for estate settlement purposes.
  • The executor or estate administrator is responsible for ensuring that the proceeds from these sales are used according to the estate’s requirements, such as paying off debts, covering estate expenses, or being distributed to beneficiaries as per the will or state laws.

Each step requires careful consideration and planning to ensure that the estate’s assets are liquidated efficiently and for their maximum value, contributing to a smoother estate settlement process.

The Importance of Beneficiary Designations

Beneficiary designations on accounts like retirement plans and life insurance policies supersede wills. It’s crucial to ensure that these designations are up to date.

Benefits of Designations:

  • Speed up asset distribution
  • Avoid probate for certain assets.

Dealing with Debt and Creditors

The executor must settle any outstanding debts of the deceased before distributing assets. Creditors typically have a set period to make claims against the estate.

Managing Debts:

  • Identify all outstanding debts
  • Notify creditors of the death
  • Pay debts from estate funds.

Real Property: Special Considerations in Liquidation

Selling real estate involves additional steps, like property appraisal, preparation for sale and understanding market conditions.

Real Estate Liquidation:

  • Appraise property value
  • Prepare property for sale
  • Sell through a realtor or auction.

Transfer on Death Accounts and Joint Ownership

Assets in accounts designated as “transfer on death” or jointly owned can bypass probate and pass directly to the designated beneficiary or surviving owner.

Advantages of TOD and Joint Accounts:

  • Avoid probate
  • Immediate transfer of assets.

Tax Implications in Estate Settlement

The executor must consider estate, inheritance and income taxes due from the estate or the beneficiaries.

Tax Considerations:

  • File estate tax returns. if necessary.
  • Handle inheritance tax for beneficiaries.
  • Manage income tax obligations.

Challenges in Estates Without a Will

If the person dies without a will (intestate), the probate court will appoint an administrator to distribute assets according to state laws.

Intestate Estate Distribution:

  • Follow state law for asset distribution
  • Court-appointed administrator’s role.

Estate Planning: Preventing Future Complications

A well-structured estate plan, including a will, trust and beneficiary designations, can simplify the asset liquidation process.

Estate Planning Benefits:

  • Clear instructions for asset distribution
  • Potential to avoid or simplify probate
  • Reduced confusion and disputes among heirs.

Summary: Key Takeaways

  • Executor’s Role: Understand the responsibilities and legal obligations.
  • Probate Process: Be aware of the steps and legal requirements.
  • Liquidating Assets: Know how to appraise and sell different types of assets.
  • Dealing with Debt: Prioritize settling debts before distributing assets.
  • Beneficiary Designations: Ensure that they are current to avoid probate complications.
  • Tax Considerations: Be mindful of estate and inheritance tax implications.
  • Estate Planning: Encourage proactive planning to ease future estate settlement.

Navigating the intricate process of estate planning and settlement requires expertise and foresight. An estate planning attorney can provide invaluable assistance, helping you to understand and manage complex legal and financial aspects, such as will drafting, trust management, estate taxes and beneficiary designations. Hiring a seasoned estate planning attorney ensures that your estate is managed and distributed according to your wishes, potentially saving your beneficiaries time, money and legal hassles. An attorney can also help update your estate plan in response to life changes, ensuring that it always reflects your current wishes and circumstances. Don’t leave the future of your estate to chance. Book a consultation with an estate planning attorney today to secure peace of mind for you and your loved ones.

Michael OLoughlin

What Questions Should You Ask an Estate Planning Attorney?

To protect assets and health during life and facilitate a smooth transition of assets to loved ones after your death, an estate plan needs to address many different issues. This includes the laws of asset distribution in your state of residence, potential transfer taxes and costs and strategies required to expedite and simplify succession issues. A recent article from mondaq, “Four Questions To Ask Your Estate Planning Attorney,” explains key points to cover with your estate planning attorney.

How do assets pass after death? Some assets pass through the will, but not all. It depends upon where you live, where your assets are situated, what kind of assets they are and how they are titled. State law governs how assets are conveyed after death, so consulting with an estate planning attorney in your estate is critical to creating a successful plan.

If you live in a community property state, your property will pass to the surviving spouse, who is deemed to own one-half of the community property. In these states, one cannot leave more than half of their property through a will, as you only own half.

There may be rules in your area restricting asset transfers. Some states have forced heirship rules, which require a certain percentage of assets to be distributed to a spouse or children, while others have “elective share” rights for surviving spouses. This allows the spouse to elect to take a sizable portion of their deceased spouse’s assets.

What legal documents make up an estate plan? There are two categories of estate planning documents: those used during your lifetime and those used after you die. During your lifetime, you’ll need a healthcare proxy to permit another person to make medical decisions for you. A Power of Attorney allows an agent to make financial and legal decisions on your behalf. Without these documents, your family may need to apply to the court for guardianship, which is an arduous process.

Everyone needs a will and/or trust to transfer assets after death. Lacking a legally enforceable document directing the disposition of assets, they will pass according to the laws of your jurisdiction, which may not follow your wishes. Using a trust to distribute assets combined with a “pour over will” is another approach to minimize court involvement. A pour-over will provides direction for any assets not already in a living trust to be placed into the trust when you die, thus removing assets from your probate estate and allowing them to be distributed according to the terms of the will.

What tax planning needs to be done? Federal, state, inheritance and income taxes vary by state and are subject to change. Consult with an estate planning attorney about what the tax rules are for you and how to accomplish goals in a tax-minded manner. For instance, right now (for 2024), the federal exemption for estate and gift taxes is $13.610 million per person, but this will be cut in half on January 1, 2026, so it may be wise for you to make gifts now. Some states have their own estate taxes, and a few have inheritance taxes, which apply to heirs regardless of where they live.

Have there been any recent changes to the law impacting my estate plan? Changes occur frequently on federal and state levels, making regular updates to estate plans critical to their effectiveness. Your estate plan may not reflect recent tax changes if it is over three to five years old. In addition to tax laws, other laws may significantly impact an estate plan. Regular meetings to review your estate plan with an experienced estate planning attorney could also prevent your will from being declared invalid by the court, when your estate will be treated as if there was no will and the state’s laws will determine how your assets are distributed.

Reference: mondaq (Dec. 18, 2023) “Four Questions To Ask Your Estate Planning Attorney”

estate planning newsletter

Taxes that Affect an Estate

Identifying the Taxes that Affect an Estate

Estate tax and inheritance tax significantly impact an estate’s value. Estate tax is levied on the estate’s total value at death before distribution to beneficiaries. In contrast, inheritance tax is imposed on the beneficiaries based on the value of assets received. Understanding these taxes is critical for effective estate planning.

What Is Inheritance Tax?

Inheritance tax varies by state and is paid by the recipient of the inheritance. States like Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania have specific exemptions and tax rates based on the beneficiary’s relationship with the deceased and the inheritance size.

Federal Estate Tax Explained

For 2024, the federal estate tax exemption is $13.61 million per individual, with estates exceeding this threshold taxed at up to 40%. Estates valued below this limit are exempt from federal estate taxes. High-net-worth individuals benefit significantly from these exemptions but must consider state-level estate taxes, which can vary.

Impact of Tax Rates on Estate Value

Estate tax rates range from 18% to 40%, meaning that taxes can diminish a substantial portion of an estate’s value. Effective estate planning, including trusts and lifetime gifting strategies, can minimize the estate’s taxable value.

Capital Gains Tax: An Important Consideration for Estates

Capital gains tax applies to profits made from selling inherited property or investments. If inherited assets appreciate and are then sold, the beneficiary may owe capital gains tax on the profits.

Minimizing Estate Taxes: Strategies and Tips

Strategies to minimize estate taxes include using both spouses’ estate tax exemptions, spending down assets, gifting and setting up trusts. These methods can reduce the estate’s taxable value, thus lowering the tax liability.

Estate Tax vs. Inheritance Tax: Understanding the Differences

The Estate pays estate tax based on its total value exceeding federal or state thresholds. Inheritance tax is paid by the beneficiary based on the inherited amount and their degree of kinship or lack thereof to the decedent. The key difference is who bears the tax burden – the estate or the inheritor.

How Estate Planning Can Mitigate Tax Impact

Proper estate planning can significantly mitigate the impact of taxes on an estate. An estate planning attorney can help explore various strategies, ensuring compliance with tax laws and maximizing available deductions and exemptions.

Conclusion: Navigating Taxes in Estate Planning

Navigating the complexities of taxes that affect an estate is essential for ensuring a smooth transfer of wealth. Individuals can effectively manage their estate’s tax burden by understanding and planning for both federal and state estate and inheritance taxes.

For personalized advice and to develop a comprehensive estate plan that navigates these tax considerations, schedule a consultation with our experienced estate planning attorneys today.

Retirement Planning

Navigating Business Succession: A Comprehensive Approach to Business and Exit Planning

As business owners focus on day-to-day operations and growth, the thought of leaving or selling their business often takes a backseat. However, as Frank Fantozzi, a certified exit planning adviser, emphasizes, “for most owners, the business is their largest asset.” This makes succession planning an exit strategy and a crucial part of overall business planning.

The Importance of Early Succession Planning in Business Strategy

Succession planning should be an integral part of a business’s foundation. Delaying this process can lead to complications, especially when unforeseen circumstances like the “5Ds” – death, disability, divorce, disagreement and distress – arise. Early planning ensures that the business remains stable, and its value is maximized, regardless of market conditions.

Core Elements of Business Succession Planning

Strategic Business Planning and Succession

Aligning business goals with a succession plan is vital. This alignment helps identify potential successors early and integrate their development into the business’s growth strategy. As Fantozzi notes, understanding where the business is and where it needs to go is crucial in this process.

Owner Readiness and Transition

Owners must prepare both emotionally and financially for their exit. This preparation involves assessing personal financial needs post-exit and ensuring that the business can meet these needs. Fantozzi points out the importance of understanding one’s cost of living without the business and preparing accordingly.

Business Valuation and Market Readiness

Regular business valuation is key in succession planning. It’s not just about the company’s size but being the best in its class. Fantozzi suggests that achieving ‘Best in Class’ status can significantly impact the value received for the business.

Succession Planning as a Tool for Business Growth and Stability

Effective succession planning is not just about preparing for an exit; it’s a growth strategy. It ensures leadership continuity, maintains business values and can be a selling point to investors and clients seeking stability in their partnerships.

Legal and Financial Considerations in Succession Planning

Succession planning involves various legal and financial considerations. These include the transfer structure, tax implications and ensuring legal compliance. Professional advisors play a crucial role in navigating these complexities.

Challenges and Solutions in Succession Planning

Choosing the right successor, especially in family businesses, can be challenging. Solutions include establishing clear criteria for succession, involving external advisors for unbiased perspectives and considering non-family executives, where appropriate.

Conclusion

Succession planning is a dynamic and ongoing element of business planning. It requires regular review and adjustment as the business and its environment evolve. As Fantozzi concludes, “Your exit strategy connects the dots between business success and a life well lived.” Business owners are encouraged to view succession planning as a vital part of their life cycle, ensuring a legacy that endures and thrives beyond their tenure.