How will your estate be managed if you become incapacitated or die?

It’s critical to identify a trusted person capable of managing your estate. Those decisions are a matter of confidence and capability.

Like a financial plan, an estate plan is typically customized and then modified over time. For a young, newly married couple with few assets, estate planning may consist of just beneficiary designations on retirement assets and life insurance. As time goes on, you want to have a plan for who will take care of your children if you die and a plan for the disposition of your assets. Estate plans require a lot of thinking through of possible scenarios and planning for each one.

When people reach their 80s, the estate plan may become less complex. In simpler estates, an attorney can set up several key documents, including your will; a trust, if necessary and desired; powers of attorney to handle your financial and medical affairs if you should become incapacitated; and a living will to direct the extent to which you want medical intervention if you are near the end of life.

The use of a trust becomes more important when people have more complicated assets and situations.

You also need to make sure that all pertinent accounts are properly titled in the name of the trust in order for it to work most effectively. People have been known to draw up estate plans but continue to have their personal taxable accounts in joint name. When they do this, the assets must still go through probate.

One common reason for having a trust is to seek better control of what happens to your assets when you are in a second marriage and you die. You will want to make sure that your assets go where you expected. This can be a particularly difficult issue when each party has children from a previous union. An estate plan can be all drawn up, but after the death of the first spouse, the survivor may decide to have the marital assets to go to his or her own children.

The degree of complication depends upon your situation. The bottom line is that you will want your assets to go where you have designated in the manner that you set forth. That is not necessarily a simple accomplishment, but with careful planning you can rest assured that your intentions will not be undone.

Dealing with the Estate Tax

The estate tax can be onerous for high-net-worth families

There are many strategies the wealthy use to minimize estate taxes. One of the simpler strategies is to purchase permanent life insurance and have that become an asset outside of the estate. That is one of the preferred methods for many people; they buy life insurance in sufficient quantity to pay the estate tax when it is due upon their death.

For people of tremendous wealth, the strategies can become quite involved, and they need to identify and take advantage of numerous opportunities to reduce their taxes. Your best bet is to take these matters up with attorneys who specialize in estate planning.

Reviewing Beneficiaries

People who neglect to take care of the estate-planning basics risk unfortunate experiences. Many people don’t realize that a will does not control what happens to assets with beneficiary designations. If you have an IRA, the investment firm will not ask for a copy of the will to decide who gets the money. They have instructions through your beneficiary designations and will send them the money when you die, even if they are people with whom you are no longer close.

It’s essential to keep track of the beneficiary designations on a retirement plan. In working with our clients, we make sure that those are examined and updated if necessary.

You may also want to use your IRA beneficiary election as a convenient and uncomplicated means for leaving a bequest to charity. Charitable intentions often change over time. Alternatively, you can use your IRA beneficiary election to make your charitable choices. If you change your mind, you just file a form, and you’re done. It costs nothing, and it is far simpler than changing your will and trust.

More than the Money

As people who have attained wealth get older, they often will want to bring in the family for a consultation. For some of our wealthier families, we conduct an annual planning meeting with the family to talk about the estate, review it with the attorney and the CPA, and make sure that everyone understands the purpose and goals, the overall business situation, and what will happen if and when family members pass away.

By getting together that way, you encourage family unity and can make sure that everyone, including the professionals, is on the same page. That will markedly improve the chances that your financial desires will be honored.

It is not all about the money, although no doubt that will be the topic for much discussion. You are passing on your values, your ethics, and the stories and memories that have made your family unique. That is an important part of your bequest to your children and grandchildren.

To learn more about the legacy you leave, order my book, The Power of Persistent Planning: A Review of Successful Financial Planning Strategies, here.

Any opinions are those of Douglas Gross and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.