Do you need to do estate planning? For many people, thinking about estate planning means thinking about mortality, certainly not a pleasant topic. In any event, isn’t estate planning something that only the very wealthy need to be concerned about? After all, the Federal Estate tax exemption has now risen to $5.49 million, and for New York residents, the New York State “exclusion” has risen to $5.25 million as of April 2017. As of January 1, 2019, it will coincide with the Federal exemption. But having a potential estate that is less than these amounts just means you will most likely not be liable for estate taxes, not that you don’t need estate planning.
Primarily, you need estate planning to make sure that your assets are distributed at your death according to your wishes, and that you are taking the necessary actions now to assure that you will have the assets at your death to provide as per your wishes for your family and others.
Some things to consider:
1. Wills: Wills basically specify to whom you want your property distributed, name an executor to see that your wishes expressed in your will are properly carried out, and if you have young children also name a guardian for your children. Wills are administered through a process called “probate”, overseen by the designated state court. (In New York that is the Surrogate’s Court in the County in which you reside at death.) Not all property needs to be probated, depending on how it is titled. Life insurance, retirement investment accounts, and other assets that name a beneficiary or joint owner generally pass outside of probate. (Proper titling is discussed below.)
2. Titling and Beneficiaries: Life insurance policies and retirement accounts can have both primary and contingent beneficiaries, and both primary and contingent beneficiaries can be more than one person. If there’s no contingent beneficiary then the insurance or account proceeds might have to go through probate if the primary beneficiary pre-deceases you. Non-retirement and savings accounts can be titled as “transfer on death” to your selected beneficiary, which should keep such accounts also out of probate. Likewise, real property, such as your home, can be titled jointly so that it will also pass directly to the person or persons you want to inherit it. However, titling and beneficiary decisions for all assets should always be coordinated with your estate attorney.
An annual To Do list item: review all relevant assets to make sure that beneficiary designations are up to date and everything is properly titled.
3. Asset inventory: While aggravating to do, it is very important to put together a complete and accurate list of all your assets, including both physical and financial assets, and their estimated values, and to make sure that your designated executor has a copy. This is something that should be periodically updated. Your executor should also know where to locate tax returns, deeds, life insurance policies, and other important estate-related documents, as well as the financial account logins to access your bank, brokerage, and retirement account information.
4. Naming an Executor and Guardian: Your will should name an Executor, the person that will administer your estate after your death, and make sure that your wishes as expressed in your will and in your designation of beneficiaries and titling of assets are properly carried out. It should also name a Guardian for any minor children if appropriate. These two roles – Executor and Guardian – are very important, and you should think about appointing people to them that are both competent to take on the roles and that fully understand your wishes. Your appointees should also be on a To Do list to be regularly reviewed to make sure that your choices are still appropriate.
5. Consider whether trusts are appropriate for certain bequests: this might apply, for example, to bequests to minor children, to a beneficiary with special needs, to children from a prior marriage, or to a charity. Estate attorneys are the appropriate professionals to consult regarding the creation of trusts.
6. Lifetime Gifting: Gifting during life can be a good way to reduce a taxable estate as well as to accomplish objectives for particular beneficiaries. Gifting assets during life can remove those assets from eventual taxation under the estate tax. During 2017 gifts of up to $14,000 to any person ($28,000 for a married couple filing a joint tax return) are excluded from the Federal gift tax. There is a lifetime Federal gift tax exclusion for taxable gifts which is the same amount as the estate tax exclusion - $5.49 million in 2017; but the gift and estate tax exclusions are linked – generally the total of lifetime taxable gifts is added to the taxable estate and the estate tax exclusion amount (the “unified credit”) is subtracted to arrive at the net taxable estate.
7. Life Insurance: You want to make sure that your life insurance is adequate and appropriate and, as noted above, the beneficiaries are up to date. This is particularly a subject about which you should consult with your financial advisor and estate attorney.
8. Incapacity: There are some considerations which are relevant in the event of your possible incapacity rather than death. You might consider, for example, giving a durable power of attorney to someone you trust to make financial decisions for you and a medical power of attorney to someone you trust to make medical decisions for you if you are not capable of doing so. You might also consider signing a “living will” that specifies your wishes regarding medical care and end-of-life decisions.
Special Note: Estate planning is complex. For all the above, it is crucial to consult with your financial advisor and estate attorney.
This article is not intended as individualized legal or investment advice. Past returns do not guarantee future returns.