Utilizing estate planning strategies to mitigate death taxes can be important, but it’s not the only, or in many cases, primary reason to reach for the estate planning toolbox. From making sure that your estate passes to your chosen beneficiaries to ensuring financial privacy, there are several ways estate planning can be beneficial.
Need a plan that doesn’t follow intestate succession
One of the most common estate planning strategies is to create a Will so that your estate can pass as you intend. For those that pass away “intestate”, meaning without a Will, there are the laws of “intestate succession,” and every state has their own version. These laws control the distribution of assets that go through probate. Assets that avoid probate, such as property in a living trust or jointly owned or Payable-on Death bank accounts, will be transferred on their own terms. As the default, the aim of these intestacy laws is to try to pass the assets along to the person(s) most likely to have been the person(s) the decedent would have wanted, but as such they cannot account for unusual circumstances or unique family situations. This is where a Will would help.
What’s an example of where estate planning could help
There are many reasons to want an unequal distribution of an estate beyond disinheriting an heir. Perhaps some of the children were already advanced an inheritance as a gift toward purchasing a home, or perhaps one of the children has special needs and it is felt they will need more to ensure a happy life. Planning ahead and creating a Will can divide the assets according to the specific family situation instead of the assets passing through intestacy, and creating a special needs trust may help protect state benefits while also providing additional care for the person.
Whether it’s an even or uneven distribution of assets, it could be that particular assets need special direction. A family business should pass to someone who participates in managing it, for example, or heirlooms pass to someone who has expressed interest in becoming their caretakers. Identifying these reasons ahead of time can prevent arguments and promote familial harmony.
Create a smooth financial transition for the family
When one passes away, there is an overwhelming amount of grief. Unfortunately, the financial side of life never waits and needs to be addressed right away, too. Not only are there all the additional minor tasks one tends not to think about, such as stopping/changing the mail, filing paperwork, but also just figuring out who to contact and the questions one doesn’t think to ask until it is too late. Is there a will, and if so, where is it? Who is the attorney? What financial accounts need to be addressed immediately? Even something as simple as accessing social media accounts can be a struggle if there is no list of passwords. This is a vulnerable time even for families that have an estate plan, and depending on the composition of assets may be difficult for the remaining beneficiaries to know how to manage them.
What’s an example of where estate planning could help
When an estate plan is created, these questions can be addressed and an “open upon death” box can be created. This could include a Will, contacts for the team associated with next steps, from financial guidance of assets and accounts to which funeral home should be handling the service. This could eliminate some arguments about what the decedent would have wanted, but more importantly can give the family more time to focus on their grief.
If the additional steps are taken to create a living trust and name a corporate executor, then one could ensure that a trust officer could step in to handle the financial management immediately of those trust assets and the executor could help with some of the minor financial tasks as well.
Ensure as much financial privacy as possible
When in estate planning a living trust is not utilized, assets will have to go through probate and have that information become public.
What’s an example of where estate planning could help
There was a book published in 1996 called “The Millionaire Next Door; The Surprising Secrets of America’s Wealthy”. It is a reference many financial advisors read to remind themselves that most wealthy Americans are not looking to appear wealthy, and much like judging a book by its cover, their prospects should not be judged by appearances. When large amounts of assets go through probate, that information is made public, and many wealthy and affluent families would prefer to avoid that.
One way to avoid that issue is to put those assets in a trust so they wouldn’t go through probate. It is still possible for the information to become public should lawsuits be brought, but the likelihood of financial privacy being retained is much higher.
Would you like more non-tax reasons to start your estate plan, or tax reasons?
At Garden State Trust Company, we help our clients with their estate plans, so we’d be pleased to elaborate on these reasons or provide others as well regarding whether creating an estate plan would be worthwhile for your family given its unique goals and asset portfolio. Even if the enlarged estate tax is made permanent on the federal level, state taxes should still be considered, as well as the goals of the family.
If you’d like more information, please reach out and let us know.
