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When it comes to estate planning, one item that can often be forgotten or overlooked but can also be easily remedied is updating your beneficiary designations. Taking an hour of your time now to look these over can ensure you have a say in what happens to these funds when you’re gone.

A beneficiary – which can be either a person, entity, or charity – is named to make the transfer of money quick, easy, and clear. While people often choose their spouse, child, or another family member to be the beneficiary, you can also choose a trustee of a trust, an estate, or a charity.

The most common accounts that allow you to name a beneficiary to inherit the account value upon your death are:

The beginning of any new year is a good time to reflect, look forward, and plan for the future – especially this year with a pandemic that has made self-reflection that much more important.

So many things have changed, including things we took for granted or overlooked before now. We as individuals have also changed during this time.

Most of us have faced the fact that we are not immortal, and we may have thought more about our own aging and immortality this year than we had in previous years.

There is no one-size-fits-all tax planning strategy, especially this year with so many new factors and uncertainties. The current pandemic has had a great impact on all of us as it has brought mortality to the forefront of our minds and prompted a lot of people to review estate planning strategies.

Because of the current low interest rate environment, now is a good time to consider the techniques available to transfer wealth to other family members at substantially reduced gift tax cost.

A Grantor Retained Annuity Trust, or GRAT, is one estate planning tool used to minimize taxes on large financial gifts to family members. Using this method, property can be transferred to an irrevocable trust for a specific period of time in exchange for annual annuity payments, and the beneficiary receives the remaining assets at the end of the trust term. When interest rates are low, it is more likely that the amount passing to the beneficiary will be greater than the calculated amount of the gift, allowing them to receive assets gift-tax free.

Everything can go more smoothly when tailored to fit an individual’s needs. This is especially true of estate planning, as Carol Ann Fey, of counsel at Artz, Dewhirst & Wheeler in Columbus, and Mary Eileen Vitale, principal at HW & Co. CPAs & Advisors in Beachwood, explain:

“The reason (to personalize your estate plan) is to make sure assets are taken care of properly and they end up going where you want them going forward,” Vitale says. “So, you want to make sure the parameters get assets transferred correctly. For example, if a beneficiary has special needs that need to be taken care of, you want to make sure your documents do that. Generic documents don’t typically take care of that. Even if you have ‘regular circumstances,’ everyone’s ‘regular’ is going to be different and you don’t know how that will affect how assets transfer.”

One clear example of this is do-it-yourself estate planning templates. Although there are a number of these templates available online that may appear to get the job done, it is difficult to know if these very general plans will end up covering everything you need.

It’s nearly always imperative to take a multi-faceted approach to estate planning as it involves the health and finances of multiple people. Ensuring that family and loved ones are taken care of in the way that benefits them most requires proper planning. One estate planning tool that is especially helpful is a life insurance policy.

Life insurance, much like a last will and testament, is recognized by most people as something used upon death. However, the benefits of a life insurance policy, the options available for it, and possible unexpected consequences are not always well known.

People often think of life insurance as income replacement for an individual’s dependents, and this is especially important for those who are a significant provider for their households. It is also important to keep in mind homemaking spouses, particularly those who are primary caregivers of minor or disabled children, as the expense of hiring caregivers, cleaning services, and food preparation might be a lot higher than the income of a spouse working outside the home.

Estate planning can be extremely confusing for a lot of people. In last week’s blog post, I addressed 5 common estate planning myths that often cost individuals and their loved ones time and money and add extra stress to their lives. Here are 5 more common estate planning myths:

  1. If I have a will, I don’t have to worry about probate. Although a will gives the court guidance on your wishes, having a will doesn’t make it so that you can avoid probate. Probate can be a long and expensive process in which one or more courts decide who will inherit your assets, so wanting to avoid it if possible is certainly understandable. It is important to note, also, that if you have real estate in multiple states, each of your properties may have to go through probate in its respective state.
  2. To avoid probate, you have to draft a trust. If you plan to draft a trust, this is definitely one area for which you may want to hire an attorney. Although avoiding probate is one of the most common reasons for people to want to draft a trust, there may be other methods that are easier and/or less expensive that will still meet your needs.

If you find estate planning confusing, you’re not alone. Estate planning is one of the areas of financial planning with the most widespread confusion, and this can lead to costly mistakes and unnecessary loss of time and money as well as excess stress for people’s loved ones.

Here are some common estate planning myths (I will address 5 now and then 5 more next week):

  1. I’m too young for estate planning. We never know for when we will need our estate plan – and when we do, it is already too late. Although our specific needs change depending on which stage of life we are in, estate planning is important for those young and old alike.

With the current 2020 federal estate tax exemption amount being $11.58 million, a lot less people are needing to plan around this tax while mapping out their estate plan, and more planning can be focused on saving income taxes for family and heirs. Saving income and transfer taxes has always been part of the goal of estate planning, and this was more challenging to do when both the estate and gift tax exemption level was lower.

Below are some strategies to keep in mind:

Plan gifts that use the annual gift tax exclusion. When you make transfers using the gift tax annual exclusion during life, the transferred assets as well as post-transfer appreciation generated by those assets are removed from your estate.

These days, our lives are surrounded by a lot of uncertainty and more people are thinking about their own mortality. Many people are choosing to review and update their estate plans during this challenging time. One thing that can easily trip up an estate plan is not paying attention to how assets are owned. Titling assets in a way that does not work with your estate plan can result in additional cost to your estate or to assets being passed on in a way that does not fit with your wishes.

Here are a few examples of ways this can go awry:

  • Your estate attorney recommends a revocable living trust so that your assets do not need to go through probate and to provide for the management of these assets in case of your incapacity. After you set up the trust, your attorney informs you that you need to retitle your assets in the name of the trust. You intend to do this, but you are extremely busy with other matters in your life and don’t get around to doing it. If you die before you retitle the assets, they will most likely have to go through probate, costing your estate money and your loved ones time as well as exposing your assets to public scrutiny. If you become incapacitated before retitling the assets, this would likely lead to undue delay in the management of those assets. Taking the time to retitle the assets before your death or incapacity would have provided the promised benefits with your trust.

There are a lot of options in online services to draft estate planning documents, such as wills, trust, durable powers of attorney, and healthcare proxies. These online services can appear to be a very good option for most people. With these options available, is it necessary to use an estate planning attorney?

An effective estate plan combines learning from the past, adapting to the present, and anticipating the future. While these document generators codify learning from the past through processes and procedures and have some elements that adapt to the present, they do not provide a way to anticipate the future in the way that a professional advisor can.

An estate planning attorney can help you to anticipate the cause and effect relationship between the choices you make today and the effect it may have on your future goals and objectives. They can also help you to identify what might prevent you from achieving your objectives, to determine the likelihood of these things happening, and plan for what to do if they occur.

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