SHP Financial's weekly Retirement Road Map show invites Attorney Keith McManus to talk about the legal and financial benefits of estate planning. Everyone has an estate, whether or not they have plans in place and whether they have a large or small net worth. Click on any of the titles below to listen to the discussions.
Who Will Manage Your Estate?
Regardless of the size of your estate or the type of plan you create to provide for your heirs, you'll need to choose a person or entity to manage the estate upon your death or disability. Basing your plan on a will that will be subject to probate court can cause problems (and expense) for your heirs, including the possibility that the person you name as your personal representative, or executor, might be unwilling or unable to fill the role when the time comes. To avoid that scenario, it's wise to set up a trust or trusts to hold your assets and to choose as trustee a professional entity whose business is managing estates—rather than a family member or friend. A licensed trust company is responsible for knowing estate and tax law and can act in the best interests of your estate and your heirs.
Seek legal advice only from an attorney
When it comes to estate planning, be sure to get your advice only from a qualified attorney with knowledge and experience in the field. Some financial advisors have been known to tell their clients that they don't need an estate plan because they have designated beneficiaries for their investment accounts. In a perfect world, that could be true. But in real life, there are many cases where the assets cannot pass directly to the named beneficiary (including age, incapacity, and bankruptcy or divorce, to name a few). The safest route is to get advice from an attorney who will create an estate plan and Trust(s) to protect your assets from undue tax burdens as well as probate court proceedings.
Meet the Estate Planner
As you begin to accumulate assets, your financial advisor may suggest that you meet with an attorney to create an estate plan. (You may be pleasantly surprised to learn that not all attorneys are as hostile as the courtroom actors you see on TV.) During your first meeting, your estate planner will answer any questions you have and will ask questions to determine the right estate plan for you and your heirs. If your financial advisor has suggested setting up a trust to own your assets, and you're not quite sure what that means, your attorney can explain the tax and probate-avoidance benefits of trust ownership.
When Divorce Is Involved
Divorce is likely the furthest thing from the minds of a marrying couple. But if it happens, and changes the life plans of the parties involved, estate plans also need to change. Even if the couple remains friendly, the former spouses need separate estate plans and separate trusts to ensure distribution of their assets to the proper heirs. They will want to be sure that their assets ultimately reach their own children and grandchildren, not the family of the former partner. Each member of the divorcing couple will want to draw up a new plan with an estate-planning attorney.
You Have a Trust. Now What?
Many people think that setting up a trust is the end of the estate-planning process. They think it will protect their assets and their beneficiaries. But the reality may be different. In order to know what your trust can do for you and your heirs—and what it is not set up to do—check with your financial advisor and an estate-planning attorney. They can help you evaluate your entire plan to determine whether your trust ensures that your wishes will be carried out.
Avoid This Ownership Mistake
Even the most well-meaning parents may think that leaving property to their children through a will provides a straightforward way of transferring their assets to the next generation. Owning their home, vacation property, or other assets in their own names opens the possibility of having their estate settled in probate court, which can be a long, expensive, and sometimes contentious process. Having a well-defined estate plan that includes a trust (or trusts) as owner of real property means heirs can avoid probate.
Keep Your Estate Plan Current
If it's been several to many years since you created an estate plan, it's prudent to revisit it now. Your financial planner may oversee your investments, but financial planning is not the whole picture. For a comfortable, worry-free retirement, be sure that the trust (or trusts) you created when you first worked out an estate plan are funded with all your assets, including investments. And be sure to review and update your estate plan on a regular basis.
How do you own your home?
An interview on the Cape Cod Real Estate Show with Claudette Vickery. Like many of us, your home likely makes up a large percentage of your assets. Without proper planning, however, your home may be subject to a lengthy and costly probate process. Including your home in estate planning, with the use of a trust as the owner of the home, can help your heirs avoid probate while mitigating the tax liability of your estate.
Plan Now to Reduce Taxes
If you want to lower the amount of federal tax you'll pay for 2018, talk with your financial planner and estate-planning attorney before the end of the year. Your financial planner can look at your portfolio and suggest strategies that will reduce your tax bill. Giving money now to the loved ones who will be your heirs is one way. Federal tax law allows you—and your spouse if you are married—to make a gift of up to $15,000 to a family member or anyone else you choose with no tax liability to either party. And while gifts above that amount do get reported to the IRS, no tax is currently owed on it.
Titling Your Property
An estate plan helps you to ensure that your assets will be distributed the way you want, which will help your loved ones avoid possible expense and family disharmony after your passing. One major component of your estate plan is the ownership of your property. Having a living trust own your home (and other real estate) as part of your estate plans means it can pass to your heirs as you wish, without the need for litigation that might be costly in terms of family relationships as well as time and money.
Get Ready to Plan
Regardless of your financial or family status, you probably know you should have an estate plan in place that will spell out distribution of your assets at your death or in case you become unable to make decisions. Your estate-planning attorney can tell you what information you'll need. But before you even meet with the attorney to begin the process, have a talk with your family. Tell them what you plan to do and get their input so there are no surprises down the road. Be sure your list of beneficiaries is up to date. (There are cases of ex-spouses inheriting what the deceased would have preferred to leave to current family members.) Notify your financial advisor that you'll be setting up a trust to hold your investments and other assets. With these few steps completed, it will be easy for your attorney to tailor an estate plan to your needs.
Sharing Estate Information
If you have recently worked with an estate-planning attorney to create a plan to distribute your assets, don't pat yourself on the back just yet. While you've likely set up a trust to ensure that everything you own goes to the beneficiaries you choose without having to go through the time-consuming and expensive probate process, and with the lowest tax burden possible, you still need to be sure that all your assets find their way into the trust. Communication between your attorney and the financial advisor who manages your investments is important for the ease of settling your estate when the time comes-and for your peace of mind.
Special Situation That Calls for Estate Planning
While creating an estate plan and trusts is wise for everyone, in some situations it can mean the difference between providing proper lifetime support for a disabled adult child and leaving the child at the mercy of family members, well meaning though they might be. In addition to providing a trust to avoid probate and estate taxes, the estate plan in this case includes the naming of an independent professional to act as trustee in the interest of the heir.
Protecting Assets from Nursing Home Costs
There are three ways to pay for long-term care in a nursing home should the need arise: long-term care insurance, which many can't afford or can't physically qualify for; private pay, where personal assets are used to pay for the care; and Medicaid, the government safety net. Applying for Medicaid involves reporting all your assets, which may count against qualifying. It's important to seek the help of a qualified and experienced professional when creating your retirement and estate plans.
Estate Planning Should Be Multigenerational
If you have an estate plan and have named beneficiaries for your accounts, you may think you have the future covered for your family. But if you have minor children and have not set up trusts for them, opting instead to have your parent receive the proceeds of life insurance to care for your children, think about what would happen if your parent required long-term care in the future. The money you plan to be used for their benefit could be a hindrance to your parent's qualifying for state aid. This is just one reason why it's important to draw up a trust with the help of an expert in estate law.
Minimizing Estate and Gift Taxes
As you plan for your loved ones' future, you may be thinking of gifting assets now as part of a strategy to minimize estate taxes later. The Internal Revenue Code makes gifting a sensible move to maximize tax benefits for yourself and for the person to whom you are giving the assets. But there are risks involved, so be sure to involve both your financial professional and your estate-planning attorney in all gifting decisions.
Protect Investments for Your Heirs
To be sure you make the best decisions for the beneficiaries of your estate, your financial planner should work with your estate-planning attorney. They can work together to advise you of the best way to leave your investment accounts to¬ your heirs, especially if minor children are involved. One way is to designate a trust as the beneficiary of your investments.
Retirement and Estate Planning
Financial and estate planning are not one-size-fits-all enterprises. If your financial advisor knows your goals as well as your financial profile and works with your estate-planning attorney, your plan has a better chance of succeeding. Your legal and financial advisors should communicate about your retirement and estate plans to ensure your plans are linked to meet your goals.
Learning about Estate Taxes
Did you know that the Massachusetts Department of Revenue assesses an estate tax when an estate's net value is more than $1,000,000? One couple who had property in both Massachusetts and in Florida (where there is no estate tax) had gotten advice from a financial planner in Florida, who was unfamiliar with Massachusetts estate law. When they sought help in Massachusetts and drew up trust documents, they reduced the tax burden for their heirs. This illustrates the importance of having the right trust for your situation.
Property and Other Assets: The Type of Ownership Matters
How you hold title to assets such as real estate, whether you are the only owner or share ownership with a spouse or partner in business, can have far-reaching impacts on tax liability and on the way the property is handed down to heirs. It's never too soon to consider the options.
Can Life Insurance Be a Disaster for Your Heirs?
Owning life insurance can be a fantastic investment. But even though the proceeds of a policy are not taxable to your heirs, life insurance may contribute to the value of your estate. If the estate is worth $1 million or more, your heirs could be liable for sizable state and federal estate taxes. That's why it's important to own life insurance in a trust.
Four good reasons to set up a trust
Trusts provide easy ways for heirs to receive assets. But it's not just about setting up a trust. You also need to set up the right kind of trust for your situation. Four points to consider are probate avoidance, estate tax minimizing, lessening the impact of the capital gains tax, and being sure that the assets you transfer to your heirs are protected for them. Work with an experienced estate-planning attorney as well as your financial adviser.
Estate Tax Review: Why Have It Done Now?
Some estate tax laws will be changing after the end of 2016. Any individual with a net worth in the millions of dollars should schedule a professional estate review right away. Your financial adviser, accountant, and estate attorney can help you take advantage of the laws as they stand now, saving your heirs from having to sell assets later to pay estate taxes.
Funding Your Trust
The next step after creating a trust is funding it. If you have a trust and don't move your assets into it, your
estate will still be subject to probate. An attorney who specializes in estate planning should review your plan and trust on a regular basis to ensure hat the trust contains all of your assets.
Why Create a Trust
There are two types of trusts: irrevocable and revocable. Even if you enjoy only modest means, having your assets in a trust can help your heirs avoid the long, expensive probate process and may provide tax benefits.