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Transferring Wealth

One thing that we can all say with certainty is that we are not immortal. Individually, we don’t know our expiration date and this uncertainty creates unique challenges for our financial plans. Will we leave enough to make our kids rich, or will we spend our last dollar as we draw our last breath? Our clients often jokingly talk about choosing cremation and letting the check to the funeral home bounce. 

Planning for our wealth transfer—or estate planning—is one of the most emotionally taxing conversations for people to have with anyone. It is also one of the most procrastinated activities in life for obvious reasons. But it is essential.  

Most people don’t think they have enough money to even warrant a discussion about estate planning or transferring wealth but the truth is it’s suited for anyone who cares where their assets go after they die. Because no matter how little you have (or think you have), if you don’t have an estate plan in place, the government will be more than happy to direct your money as they see fit. 

Estate planning goes hand in hand with financial planning. A properly drafted estate plan allows the wealth of your estate to transfer in a very efficient manner. The major inefficiencies come from probate and estate taxes. Let’s briefly examine both 

Whether you have a modest or a large estate, a wealth transfer goal should be to avoid probate. Probate is the state’s legal process to determine the validity of your will. Even if you write a will, it’s merely an instruction letter to the court on how to conduct your probate. It doesn’t avoid the probate process.  

The laws around estate taxes are different. Under the current laws, every person has a 5.43 million dollar exemption from estate taxes when they die. And unlike probate, the taxes are usually calculated on the net estate. However, almost ALL your assets are subject to the estate tax. So things that can usually avoid probate, like IRAs (and other qualified retirement plans) are subject to the tax.  An estate planning attorney should be considered to help you understand the effect of state and federal estate taxes on your wealth. 

Questions to Consider:
  • What are your preferences about how your wealth (great or small) passes to your heirs?
  • What would you like to do to help your beneficiaries avoid the disagreements and costs that probate can sometimes cause?
  • What have you done to transfer your wealth in the most tax-efficient way possible?
  • Do you work with a financial advisor and estate attorney are acting in tandem? How do they communicate with each other?
  • How would major shifts (either longer or shorter) in your life expectancy affect your financial and estate plan?
Tags: legacy planning
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