Estate Planning & Wealth Transfer
You should have an estate plan. If you have one, maybe its time to revise your present estate plan.
Whom do you want to protect financially? Maybe you’re recently divorced or widowed?
There are several immediate steps you can take to independently control your own plan.
All of them require attention and time, but none of them are complicated. Sometimes we think estate strategies are only for the wealthy; however, creating an estate strategy is more about you and the control that you will have over your assets. A well-planned estate strategy provides for you when you are no longer able to care for yourself.
Make a list of whom you want to name as heirs and what you want them to inherit.
You can always change your mind later. Wills, revocable trusts (will substitutes that avoid probate), and designations of beneficiaries are always revocable. Listing beneficiaries is not enough.
Decide who will handle your affairs upon your death.
Be sure to name successors, should one refuse to serve.
If professional representation is needed because of the complexity of your assets, or because there is no one close to you to take over the helm, you should ask your legal advisor or CPA to provide recommendations for a qualified personal representative. The downside to this is the cost. Expect a management fee each year if you set up a trust that continues after your death. Or, if your estate has no trusts to manage, the trustee will charge a percentage of the estate’s value to administer it when you die. Most of these fees are fixed by state statute, although you can negotiate.
Update your power of attorney and health-care proxy documents.
Your power of attorney and health-care proxy can profoundly affect the quality of your life. Usually you designate your main beneficiary to act in your stead if you become incapacitated. For such personal issues as health care and bill paying while you’re ill, try to select a close confidante and make him or her aware of your wishes.
Both health-care proxies and powers of attorney are routine documents available through your lawyer, software programs or in bookstores. Be sure that the power is “durable.” It should have a clause that keeps it in effect even if you become incapacitated.
Update your will and other documents
If you’re recently widowed or divorced, many of your assets may still be in the name of your spouse, naming you as beneficiary. You must retitle the ownership on everything from your bank statements and brokerage accounts to motor vehicle registration, deeds, co-ops, wills and all other property. Make your list. Then call the custodian or person in charge of the paperwork. Ask him or her to send you the change of ownership and beneficiary forms.
The procedures vary by asset and custodian. In most cases, you will need a death certificate and proof that you represent the estate. For the latter, you will need a letter testamentary if your spouse made a will or a letter of administration if there was no will. Both are obtained through probate procedures in the court.
If your spouse’s assets are held in a living trust, or jointly with you, you’re automatically authorized to represent the estate. But you may still need an estate tax waiver.
If you’re divorced, you’ll need certified copies of the divorce decree and the cooperation of your spouse. He or she must sign over marital property that now belongs to you or face a court order. The divorce attorneys usually “mop up” this paperwork end game.
Here are some “do’s” to follow:
Do designate beneficiaries
Once you own the asset, go back and rethink your initial “bounty list.” If it’s the same, change the beneficiaries on insurance policies and accounts. When you do so, put in more than the name. Be sure the custodian knows what to do if the beneficiary dies before you.
Do take extra care with pension designations
Minors can be beneficiaries of all types of insurance or retirement plans without creating a trust. A custodian must be named. Without a trust, the children get the money immediately upon reaching the age of majority in the state where they reside.
As for retirement accounts, a non-spouse beneficiary must either take out all the money and pay taxes on it in the first five years after your death, or, if you already started to take out money, the beneficiary must withdraw on the same schedule as if you lived.
If you have not started to withdraw funds from a pension, do meet with an accountant or estate planner to determine the best withdrawal election for you and your heirs. Even if withdrawals have begun, there may be ways to stretch the withdrawal period for your heirs.
Do use insurance
You can buy a life insurance policy and name a loved one as beneficiary. But you may also want to consider a “second-to-die” insurance policy. A second to die (survivorship) life insurance policy differs from the usual life insurance policy in that two people are insured and must be deceased before the policy proceeds are paid. The most common situation is where a husband and wife are the insured and the policy proceeds are used to provide liquidity to an estate where estate taxes are projected to be substantial.
While this strategy is usually presented to couples, it also works for singles. Simply make the measuring lives yours and your adult child’s. Your grandchild can be the beneficiary. You may find that a small premium can result in a dynamite legacy to a loved one or a charity.
Do make your own will or set up a trust, which can avoid probate court.
If you have assets in several states, your estate will be subject to multiple probates, so a trust is a good idea. Aside from that, choose between a will and a trust based on the difficulty of probate in your state, and your interest in the extra privacy a trust affords.
Do consider charities
One of the creative estate planning tools for singles is through Charitable Remainder and Charitable Lead trusts. With the former, you transfer an appreciated asset to a charity. The charity will sell it for you and invest the entire proceeds (no reduction for capital gains). You get a tax deduction equal to the fair market value of the gift when given, not when you acquired it. And you enjoy a lifetime annuity from the investment.
With the lead trust, you leave a sum to charity in your will. The charity invests it for an annuity to a beneficiary named by you. Upon the beneficiary’s death, the charity gets the remainder. In this way, you funnel money to heirs, but get an estate-tax savings according to an IRS table that takes into account the age of the beneficiary.
As everyone knows, unforeseen circumstances can happen, which is why it’s important to prepare for the unexpected. While you cannot predict the future, you can prepare for it. Set up a face-to-face meeting with a Newbridge Financial Services Group, Inc. financial advisor so we can better understand your personal situation and help keep you on track.