Estate Planning Tips For Keeping Your Money In The Family Personal finance


The prospect of estate planning can seem overwhelming, but don’t put it off. Having an estate plan is essential to ensure that your money and assets go to your future heirs.

The good news is, your family probably won’t have to worry about paying property taxes. In 2021, one would have to die with assets exceeding $ 11.7 million to trigger the inheritance tax, although there is a proposal in Congress that would cut the exemption in half.

Most estates would still be exempt from this tax, even with a $ 6 million exemption. “It has an impact on such a small percentage of the population,” says Benjamin Trujillo, senior advisor in the Compardo, Weinstroer, Conrad & Janes office of financial planning firm Moneta. While some people worry about how inheritance tax affects family farms and small businesses, the law’s provisions help protect them from big tax bills, says Trujillo.

The bad news is that avoiding inheritance tax is just one of your worries. Heirs may be responsible for paying federal income tax on certain assets and retirement accounts, and if you don’t plan properly, your money could end up in the hands of a former spouse or creditor. .

“(You) want to make sure that (your) business is going to the right people,” says Patrick Simasko, lawyer and heritage preservation specialist at Simasko Law in Mount Clemens, Michigan. This means that everyone can benefit from estate planning.

Meeting with an accountant and estate lawyer is the best way to tackle this complex issue, but here are some estate planning tips to get you started.

  • Make a will.
  • Check your beneficiaries.
  • Set up a trust.
  • Convert traditional retirement accounts to Roth accounts.
  • Donate your money while you are alive … but wisely.

Write a will

Writing a will is the most basic of estate planning strategies. This document specifies the distribution of your assets after your death.

This is an obvious first step, but a lot of people don’t even bother to write a will. In fact, only about 33% of people report having a will, according to the 2021 Estate Planning and Wills Study that surveyed 2,500 Americans, published by Of those who don’t have a will, 34% say it’s because they didn’t.

Without a will, your estate will be divided in estate court, which means someone else will decide who gets your money. Having a will does not mean that your heirs avoid probate. They still have to go through the court system for the will to be reviewed and confirmed as valid.

“It’s a slow and expensive process,” says Craig Kirsner, president of Stuart Estate Planning Wealth Advisors in Coconut Creek, Florida. Probate a will can take anywhere from six months to two years, and then it becomes a public document that anyone can read and review. For these reasons, those looking for a quick and private way to transfer their wealth should consider other estate planning strategies.

Check your beneficiaries

One way to avoid the estate court is to have beneficiaries named for your assets. Some accounts, such as retirement funds and life insurance policies, allow owners to name the beneficiaries who will receive that particular asset.

“In some states, you can even do beneficial acts,” says Trujillo. These make it easier to transfer ownership to someone else upon your death. Other accounts can also be set up with transfer on death provisions, and this is the cheapest and easiest way to pass assets to heirs.

Since a beneficiary or TOD designation takes precedence over anything written in a will, it is a good idea to review the beneficiary information after every major life change, including the birth of a Will. children, marriage or divorce.

Set up a trust

If you have a large estate or are concerned that your heirs are not careful with your money, you can create a trust and appoint a trustee to distribute your estate. A trust may make more sense if you bequeath more than $ 250,000 in assets to one person, Kirsner says.

Trusts can be set up in several ways, but irrevocable or permanent trusts can offer the most tax benefits. When the money is placed in an irrevocable trust, the assets no longer belong to you. They belong to the trust itself. As a result, the money cannot be subject to inheritance tax. While a trustee ultimately controls the money, you can create stipulations about its use, and the money can be distributed from a trust even while you are alive.

“My clients want to keep their money in their family line for as long as possible,” says Kirsner. To achieve this, a dynasty trust can be used to ensure that money is passed down from generation to generation and protected against divorces, lawsuits, and claims by creditors.

Due to the complex nature of trusts, you’ll want to consult with an estate attorney to determine the best way to create one that meets your goals. A lawyer specializing in trusts can charge $ 3,000 to $ 6,000, but Kirsner says “you get what you pay for.”

Convert traditional retirement accounts to Roth accounts

Those with traditional 401 (k) or IRA accounts might inadvertently leave their heirs with a big tax bill. “IRAs are terrible for estate planning,” says Trujillo.

Regular income tax must be paid on distributions from all traditional retirement accounts. In the past, non-marital heirs such as children were able to extend these distributions over their entire lives, thereby reducing the total taxes owed. But now heirs other than spouses must withdraw all the money from an account within 10 years. If the account balance is large, it could require large distributions which could be taxed at a higher rate.

If you are looking for how to pass money to heirs tax free, this can be accomplished by converting traditional accounts to Roth accounts. The converted amount is subject to regular income tax, but withdrawals, whether by you or your heirs, are tax-free. Plus, with tax rates nearing all-time lows, it may be better to pay taxes on the money now rather than later.

Donate your money while you are alive … but wisely

You may not have to worry about tax planning if you just donate your money while you are alive. Beginning in 2021, the IRS allows individuals to give up to $ 15,000 per person per year in gifts. If your goal is to avoid inheritance tax, these gifts can lower its value. The money is also tax free for the beneficiaries.

However, be careful not to donate appreciating assets, such as stocks or a house, which receive a base increase when they are part of an estate. This means that the taxable amount of an asset is adjusted upon the death of the owner and therefore it may be beneficial to transfer some assets after death rather than before. Speak to a tax professional for advice in this area.

Married couples can use a Lifetime Spousal Access Trust to donate a large amount of money from one spouse to the other. This irrevocable trust can be used to withdraw money from an estate while keeping the funds accessible. “There are some risks,” Trujillo says, “(but) using a trust is the best way to make an efficient transfer.”

Another way to reduce the value of your estate is to make charitable donations. Rather than making a one-time donation, consider setting up a donor-advised fund. This option would give you an immediate tax deduction for the money deposited into the fund and then allow you to make charitable grants over time. A child or grandchild could also be appointed as a successor in the management of the fund.

Complex strategies and the ever-changing tax code can make estate planning intimidating. However, ignoring it can be a costly mistake for your heirs, even if you don’t have a lot of money in the bank. Talk to a professional to see if these estate planning strategies may be right for you.

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