estate planning
estate planning

7 factors to consider in your estate planning

“More than 50% of Americans think that estate planning is at least somewhat important, but only 33% have a will or living trust.”

Nobody likes to think about what will happen when they’re gone, but ensuring your estate is in order will help to prevent unnecessary family squabbles and reduce the tax burden on your loved ones when the time comes. If you have a family office, you’ve no doubt undertaken succession planning so that you have the right people in place to keep the organization operational. Estate planning is simply the next step in this conversation. The purpose of an estate plan is to protect your wealth and determine your asset distribution for the next generation. Here are some of the elements a financial advisor will help you to consider in your estate plan. 

What do you need to consider when it comes to estate planning?

Estate planning can be quite a complex undertaking. Here are seven factors you’re going to need to discuss with your financial advisors: 

1. Last Will and Testament

The most basic building block of estate planning is the Will. This is a legally binding document that allocates your assets according to your intentions. For your Will, you will need an executor to carry out your wishes and guide the Will through probate, which is the court-supervised procedure for carrying out the instructions in your Will. You will need to consider who will be receiving which assets, as well as each individual’s ability to manage their inherited wealth. 

2. Estate Tax exemptions

If you have a sizable estate (exceeding $11.58 million), you will need to anticipate estate taxes and work with qualified advisors on a plan to minimize these. One common tactic is to gift part of your estate to loved ones while you’re alive, as this comes with different tax ramifications for you. In fact, the Tax Cuts and Jobs Act (TCJA) outlined a doubling of the estate and gift tax exemption through 2025. This plan includes a tax exemption of $12.9 million for an individual and more than $25 million for a married couple in 2023. You will need to discuss the various state and federal tax requirements to minimize the impact on your wealth.  

3. Life insurance

Another important consideration in estate planning is life insurance, which could go towards paying off estate taxes or providing income for your family. If your beneficiaries choose to receive the insurance policy payout in installments, there might be additional taxes due. You could consider moving your insurance policy to an irrevocable life insurance trust (ILIT), but this is not always the best option. It’s important to include any life insurance policies in the overall discussion with an estate planning expert.

4. Dynasty trusts

If you’re looking to not only provide for the next generation, but have plans for your estate to pass on to multiple generations, then you may consider setting up a dynasty (or perpetual) trust. This allows your family wealth to pass from generation to generation with significantly reduced tax requirements. Provided the assets remain in a dynasty trust, the wealth can be transferred without excessive estate or generation-skipping transfer taxes. 

5. Retirement savings

Another factor of estate planning is your retirement savings, which you may actually pass on to another beneficiary after your passing. If you’re an owner of an individual retirement account (IRA), you can choose who will benefit from the account. However, you’ll need to discuss with your advisors whether there will be income tax ramifications if you go this route. 

6. Revocable trusts

Real estate is another asset that will be taxed after death, which is why you might want to consider holding your property in a revocable trust. These trusts can be adjusted until the time of death, with no probate required. During the life of the trust, the income earned will be distributed to the grantor, and only after your death does property transfer to the beneficiaries of the trust. You should also consider the titling of deeds, which could allow for the transfer of property without going through probate. 

7. Power of Attorney

Power of Attorney (PoA) is critical to estate planning as it determines who will make decisions about your healthcare, finances, and other personal matters in the event that you’re incapacitated. A financial power of attorney enables the individual to make important financial decisions on your behalf, whereas a medical or healthcare power of attorney allows them to make medical decisions according to your wishes. 

What matters require assistance from an estate planning advisor?

It’s important that you engage experts in the field of estate planning to ensure that you meet all of your objectives in terms of caring for your loved ones. Your advisor can assist by:

  • Reviewing any existing estate plans with a view to update for changing tax law and individual circumstances
  • Establishing your own retirement and financial goals
  • Determining your financial goals for the next–and future–generations
  • Considering the inheritance of each family member or other dependents
  • Outlining the roles of those individuals in your succession plan
  • Establishing a governance process for making decisions
  • Establishing a method for dispute resolution

If you have established a family office or are effectively managing the family office, you should have an estate plan in place. 

As financial advisors, we help many of our clients with estate planning. We’ve also supported clients through the challenging experience of settling an estate for a loved one who didn’t leave up-to-date documentation behind. That’s perhaps the most critical reason to work with financial experts—you can provide for your family and loved ones while minimizing the friction and heartache of settling your estate.

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