KCA Wealth is committed to educating our community about the complexities of retirement, wealth management, and the large financial decisions we make over the span of a lifetime, especially when planning out personal estates.
According to Investopedia, Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death or in the event they become incapacitated. Proper estate planning, which includes planning and development of wills, trusts, charitable donations, taxes, life insurance, retirement accounts, and more is essential to ensure you exceed your retirement goals and adequately protect your assets for your heirs. Some of the essentials, such as making decisions on executors and beneficiaries are important, but many fail to realistically plan on specifics such as setting up funeral arrangements or last will and testaments. If these specifics are left unclear it will likely lead to confusion and stress for your loved ones.
Further, proper estate planning provides you and your beneficiaries the peace of mind and certainty, through legal wills, but also insurance and financial vehicles to ensure your final wishes and assets are properly allocated and available regardless of your time of passing. Further, these assets can potentially save your beneficiaries significantly in taxes if planned properly.
Marriam-Webster defines a will as a legal declaration of a person's wishes regarding the disposal of his or her property or estate after death. Although this definition is accurate, it is a complex and sometimes confusing process. Laws can differ greatly, however, nearly everyone is eligible to create a will at age 18. However, not all wills are considered legitimate; depending on state laws the legal standing of a will could differ. According to LegalZoom, these are some of the most important elements, but not all of the elements to ensure legality:
- Ensure all names bequeathed assets are named, and don’t forget to state anyone that is specifically NOT entitled to your assets.
- Name of legal guardian(s) of your minor children.
- A list of assets and instructions for their disposition,
- The name of the executor and alternate(s).
Many services offer to create wills on your behalf, and even trends like video wills have reached popularity. However, according to AllLaw wills can often be exploited, misinterpreted, and argued. It is highly recommended everyone, especially those with a multitude of assets, consult with an attorney to ensure their will meets their expectations and squashes legal challenges.
After death, your will’s first challenge relates to probate. As defined by Investopedia, probate is the legal process in which a will is reviewed to determine whether it is valid and authentic. When an individual dies, the custodian of the will must take the will to the probate court or to the executor named in the will within 30 days of the individual’s death. The process is court-supervised and validates the authenticity of the will. Ultimately, if planned properly, the court officially appoints the executor named in the will, which, in turn, gives the executor the legal power to act on behalf of the deceased. However, this is often a time of confusion and litigation in the case an estate has not been properly planned.
Although ensuring you have a will in place is an essential starting point, it is far from the entire picture. Wills are ineffective alone in ensuring your assets are properly distributed to your beneficiaries less any exorbitant taxes, financial penalties or financial obligations of funeral preparations. Such is why proper planning, through vehicles such as AB trusts, which separate assets into two after the death of the first spouse, should be utilized in many cases.
Trusts have the ability to minimize, or postpone, tax payments that you saved, invested and maintained throughout your lifetime. There are many types, however, trusts are either living trusts (during life) or testamentary trusts (after death). These testamentary trusts themselves are dictated in the will itself, and can assist in minimizing liabilities by reduce, eliminate, or postpone tax payments for beneficiaries.
Further, opportunities to fund the education of loved ones, while alive, can be maximized through the creation/allocation of funds to a 529 savings plan structured for the beneficiary, while also encouraging higher education. However, if these assets are transferred at death this can result in significant taxation for the beneficiary providing them far less resources. If you’d like to learn more about saving for college you can use KCA Wealth Management’s calculator!
Other strategies, such as estate freezing and charitable contributions can help to offset and maximize taxation. These strategies minimize the overall financial value of the estate, which ultimately will lower the estate tax bill.
Life insurance provides you and your heirs the opportunity to properly plan for estate taxes as well. It can be used to pay death taxes and expenses, fund business buy-sell agreements, and retirement plans. Further, if planned properly, taxes can be paid without resorting to the sale of assets. This can be popular, especially among those owning significant illiquid or “heirloom” assets such as farms, homes, collectibles, and other assets. Lastly, life insurance proceeds can even potentially be income-tax-free for beneficiaries if properly planned.
At KCA Wealth Management we are devoted to providing our clients with the optimal financial planning strategies to maximize the value of their assets while minimizing frustration and the impacts of any market fluctuations or unexpected expenses from hampering their goals.