We live in a world where change rules. Whether it’s the nature of the economy or the shape of the modern family, society is evolving, and the way we plan for our future will need to evolve too. That’s why estate planning — for everyone, no matter who you are — continues to be an incredibly important endeavor.
Who Needs an Estate Plan?
Anyone who has assets could benefit from estate planning strategies, especially if those assets sit outside the realm of retirement accounts. But, even if all of your assets are held in discrete retirement accounts, this guide to estate planning may help you make the most of your wealth for future generations.
Essentially, the more assets a person has, the greater the potential benefit of estate planning and the greater the potential for negative consequences if you forgo estate planning. But everyone can benefit from the practice of estate planning.
What is the Importance of Estate Planning?
Estate planning holds many benefits for individuals and their families who have assets to pass on to heirs. Firstly, it ensures an estate owner’s wishes are carried out such that their assets are distributed and used in ways they approve of, even if they aren’t there to oversee the process. Secondly, estate planning protects beneficiaries, including children and other individuals who cannot advocate for themselves.
An estate plan can also, eases the obligations of form filling and probate, minimize complicated family disputes, and take some of the pain away from organizing at the point of an estate owner’s death.
However, estate planning is not just about distributing assets after death. It also involves planning for incapacity, ensuring that you have the right people in place to make decisions for you when you are no longer able to do so. This could include appointing a healthcare proxy or power of attorney to make medical or financial decisions on your behalf.
The main importance of estate planning is that without an estate plan and assets may be subject to legal judgments. They may incur unnecessary taxes if the parties involved don’t understand the most current tax requirements, and lack of efficiency and experience may lead to assets being mishandled and value lost. Ultimately, estate planning is a fundamentally important investment in your future and the future of your loved ones.
What Does an Estate Plan Include?
The fundamental components of estate planning are the following:
A will. The most basic element of estate planning, a will outlines how a person’s assets are to be distributed upon the estate owner’s death. It can also include instructions for who should care for minor dependents and be used to direct charitable donations and gifts.
A trust. A trust establishes a fiduciary relationship in which the grantor gives a trustee the power to hold assets on behalf of a beneficiary, protecting those assets from legal disputes and certain taxes while also ensuring the assets are distributed and used in a way that befits the grantor’s wishes.
Insurance. Life and other forms of insurance can be powerful estate planning tools, helping to protect dependents upon the untimely demise of a provider. It may also be used to mitigate the effects of estate taxes on very large estates.
Power of Attorney. A power of attorney is a legal authorization that designates a particular person to make decisions on behalf of someone else regarding property, finances, or medical care. Powers of attorney are important because they eliminate questions at pivotal points, such as when an estate owner is incapacitated.
What Does the Estate Planning Process Look Like?
Now we know what is included in an estate plan, and we can understand the importance of estate planning in general, but what is the process of putting it all together? What is involved, and who should have a seat at the table?
Who Should be Involved?
Knowing how and when to start estate planning is important, but the “who” is also essential. Every estate will be different, and every family will have its own set of relationship dynamics and needs as they enter the process.
The first set of people to have in the room are family members who will be making estate decisions, though there are six players in total that should be a part of the process:
- Beneficiaries. Potential beneficiaries are individuals or entities who may inherit assets from an estate or trust. They are important to include in the estate planning process because they’re going to be the ones inheriting the assets of the estate owner.
- Executors. Executors are so named because they execute the will of the estate owner, ensuring assets are settled and distributed according to the estate owner’s wishes. They also have an important role in managing the estate — paying taxes, collecting assets, timekeeping, and generally protecting the interests of the estate owner and potential beneficiaries.
- Trustees. Trustees are responsible for managing trust assets on behalf of beneficiaries. They make investment decisions, distribute income or principal, and ensure that the trust is administered according to the terms and conditions outlined in the trust document. Like executors, trustees play a key role in safeguarding and managing trust assets.
The second set of people are trusted third parties and professionals who can help the estate owner and family manage estate planning strategies and act as a guide to estate planning for anyone who needs it.
- An estate attorney. An estate attorney is a legal professional who specializes in the documentation and processes of estate planning. Your attorney can act as a guide to estate planning, helping the above individuals to understand documents, processes, and timelines and to step in and take action on their behalf to make sure the estate is always viable and in compliance with the law.
- A financial advisor. An advisor can help asset owners and their families create a plan that works for them. They will get a holistic view of the owner’s life and legacy, working to understand which investment and estate planning strategies will be relevant and beneficial in their particular case.
- An accountant. A financial professional who knows taxation inside out. They will provide a guide to estate planning from a tax perspective, helping families stay compliant but also helping them to minimize estate tax, utilize gift exclusion, and prepare returns.
Other professionals, such as insurance agents and bank representatives, may also be called on during the estate planning process as needed.
How Long Should the Process Take?
The length of time you spend estate planning will depend on how complex your financial situation is, how many beneficiaries there are, how many assets and trusts are in play, and, in short, how many documents need to be written up and filed. Any additional complexities — such as family disputes or challenges to the will — will also add time. The planning process may take several months to a year to complete.
How to Create an Estate Plan in 5 Easy Steps
Getting ready to begin estate planning is the biggest challenge. It’s important to get support and to make sure the whole team is on the same page and communicating clearly. Use the simple five-step guideline below to help you navigate a successful estate planning process.
- Prepare your materials.
To begin estate planning, you will need to have on hand: a comprehensive list of assets and liabilities, a list of heirs and beneficiaries, and a collection of tax filings. These materials will help your team to accurately assess the estate’s value and make good decisions about how it should be distributed.
- Establish a set of goals.
What are your goals for estate planning? Beyond just checking the estate planning box and setting up beneficiaries, what would you like your estate to achieve? Would you like to gift a certain amount to charity? Would you like to support a particular venture? Goals are especially helpful for beneficiaries and executors because they help define your wishes and lower the risk of disputes.
- Work with an attorney to assemble documents.
Depending on your goals and needs, consider consulting with an estate attorney to determine which types of documents need to be created and how to file them. An attorney will help get the ball rolling when it comes to establishing trusts, setting up gifts, and resolving disputes, if there are any.
- Consult a financial advisor to maximize your estate’s value.
Yes, you want to perform estate planning to get documents in order and protect heirs and beneficiaries, but you can also view estate planning as a way to expand and extend your value. Look for a financial advisor with qualifications and credentials, experience handling a diversity of estates, and someone who understands your personal goals so that they can keep you on track.
- Make sure everyone is on board.
It takes a village to plan an estate, and you want to make sure every relevant family member and potential beneficiary knows what their role is. Communicating a clear road map now will ensure clarity later when the plan is executed. It is best practice to avoid the mismanagement of assets, avoid delays and inefficiencies, and stay compliant with tax and legal requirements.
What are the Challenges of Estate Planning Today?
There isn’t a lot that has changed in estate planning in 2023 that is different or unique from a decade ago. However, while the concept of estate planning has changed only slightly in the past decade, the world has changed a lot. As such, any guide to estate planning needs to include a contingency for these changes.
What’s New in Rules and Regulations?
The most timely aspect of your estate planning is likely to be external. This means you should be aware of any new laws or tax requirements that will change how your estate planning strategies function.
Here are a few regulations that may impact you if you’re estate planning in 2023:
- The federal gift tax annual exclusion.
2023 saw the rise of the federal gift tax annual exclusion, from $16,000 to $17,000 per person, per recipient
- The federal estate tax exemption.
The federal estate tax exemption has increased This includes the gift tax exclusion so you’ll want to assess your plans and organize gifts wisely to maximize the amount your beneficiaries eventually receive and reduce your tax burden.
- The SECURE Act 2.0.
This revised version of the SECURE Act, passed into law by President Biden in 2022, has several implications for those planning their retirement. One of these implications is required minimum distributions — essentially how an estate owner rations out their retirement income for tax purposes. The new SECURE Act also allows for larger 401(k) contributions and for expanded use of Roth accounts.
- State Tax Law Changes.
It’s important to keep in mind that, in addition to Federal estate tax laws, each state also has its own set of estate laws, so estate owners should make sure to stay abreast of changes at the state level in order to keep their estate plans current.
Which Elements of an Estate Plan Need to be Updated?
Estate owners and their families should get into the habit of checking in with their estate plans regularly. Review wills, trusts, assets, and liabilities. If family relationships shift, if a life event causes disruption, or if your needs or wishes change, you will need to revisit your estate plan and adjust.
It could be that your beneficiary list needs to be changed. You may need different trustees, executors, or powers of attorney to be empowered to act on your behalf. It’s important to keep updated documentation of your wishes.
Three Common Hurdles that Hinder Your Estate Planning Strategies
Today’s families may encounter the following challenges as they begin planning their estate:
- Running into conflict.
Estate planning can be a sensitive issue for families. There may be multiple beneficiaries and many assets to share among them. “Who gets what” is a simple way of thinking about these conflicts but they’re also motivated by responsibility sharing. Who is going to be responsible for making key decisions? Who will be executing the estate? Emotions often run high during these conversations because they inevitably involve grief and family relationships.
- Keeping documents up to date.
Financial situations are constantly evolving, and a common issue is estate documents becoming outdated. That’s why a key part of your estate planning guide should be updating estate documents with every life event — every marriage, divorce, death, birth, relocation, and new assets. Documentation should also be reviewed every five years to make sure it complies with the most current estate law.
- The incurring of legal fees.
Estate planning, depending on the situation, can be costly, and attorney’s fees add up quickly, especially in more complex dynamics. However, given the importance of estate planning and the fact that legal issues become much more costly if you act retrospectively, proper, early planning is a must. Planning while the estate owner is still alive and able to communicate their wishes can help you keep legal fees at a manageable level.
The key to managing and minimizing all of these challenges is to practice open communication and bake proactivity in the process. Involve all parties from the outset so that everyone feels a sense of ownership and accountability.
Now is the Time to Set up Your Estate Planning Strategies
Ultimately, estate planning is an essential task for anyone who wants to ensure their assets are passed on to the right beneficiaries in the most effective way. The length of time it takes will depend on various factors, including the complexity of your financial situation and the number of assets and beneficiaries involved. However, it’s better to get started well in advance, since as we noted above it can take several months to a year to complete the process.
The five-step guideline outlined above provides a useful framework to help you get started with successful estate planning. However, you must also complete your due diligence along the way. Remember to stay aware of any new laws or tax requirements that could impact your estate plan, and review your plans regularly, making adjustments when necessary.
Although there are several hurdles that can hinder estate planning strategies, such as running into conflicts and not having everyone on board, this estate planning guide can help you navigate any potential roadblocks with ease. If nothing else, always take the time to prioritize clear communication with family members and potential beneficiaries. Also, consider working with an attorney and financial advisor to help ensure a successful estate planning process.
At the end of the day estate planning may be a daunting task, but it is an essential part of securing your legacy and ensuring that your wishes are carried out. At Pekin Hardy Strauss, we can help you get started planning your estate today.
If you looking to learn more about personalized estate planning strategies, please contact us, at Pekin Hardy Strauss.
This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy”, dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment or other professional advice. The views expressed are those of the author(s) as of the date of publication and are subject to change. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other strategy in the future, there are no assurances that any predicted results will actually occur.