If you own something and you love somebody, you need an estate plan. An estate plan is much more than just a tax plan. An estate plan includes how are you taken care of while you are alive, and then how things are handled at your death. An estate tax plan focuses on taxes, but that is only one piece of an overall estate plan.
We’ve all heard about celebrities who have died without a will, like Prince and Michael Jackson, and the disagreements over their estates. More recently, Larry King died having amassed a fortune worth about $50 million. Due to his eight marriages to seven different women, his estate planning situation was a bit complicated, as you might imagine. He was in the midst of a divorce settlement with his seventh wife when he died, and now she’s fighting against his handwritten will that excludes her. While your estate planning situation probably isn’t as filled with drama, it’s still important to have an estate plan in place.
The key components of an estate plan include:
- Will. One of the most common mistakes with a will is not keeping it updated. You need to get out and review your will at least every five years, or if there has been a major life event in your family (a marriage, a divorce, a birth, or a death).It is important to be aware of what a will does and does not cover. Anything where you’ve named a beneficiary, i.e. retirement accounts or life insurance policy, won’t be covered in a will. The beneficiary designation supersedes the will unless you leave the asset to your estate. Additionally, any joint assets are automatically passed on to the joint owner at your death.
- Powers of Attorney. Powers of Attorney help take care of you while you are alive. There are two types of Powers of Attorney: Medical and Financial. The Medical POA is for someone to make your healthcare decisions when you cannot. The Financial POA is for someone to make your financial decisions, manage your affairs and administer your finances when you cannot.
- Living Will or Advanced Medical Directive. The living will is not a will. It is an advanced medical directive. I call it death with dignity. If you are incapacitated and have no hope for recovery, this provides instructions on how you want to pass on.
- Trust. Do you need a trust while you are alive, or do you just need your legal documents to create a trust upon death? Choosing one or the other is a function of control, taxation, or other reasons that make forming a trust prior to death a better option for you. If you don’t have an attorney, we can recommend one.
Estate Taxes
The lifetime estate tax exemption limit for an individual is $11.7 million and for married couples is $23.4 million. With the Tax Cuts and Jobs Act of 2017, the estate exemption limit was almost doubled to its current numbers. When that Act expires in 2026, estate exemption limits will change back to a much lower threshold like the $5 million limit prior to 2018, or even $3.5 million that President Biden has floated.
When you add up the value of your home, any other real property, retirement accounts, and any life insurance policies, the value of your estate can be larger than you realized. There are things you can be doing now to take advantage of the higher estate tax rules and get some of the items out of your taxable estate to protect yourself and your estate from future tax law changes.
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Disclosure:
Investment advice is offered through APO Financial Services, LLC (“APO”) 10155 Westmoor Drive, Suite 175, Westminster, Colorado 80021-2627. APO Financial Services is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration with the SEC as an investment adviser should not be construed to imply that the SEC has approved or endorsed qualifications or the services Eric Scott Financial and/or APO Financial Services offers, or that its personnel possess a particular level of skill, expertise or training. Additional information pertaining to APO’s registration status, its business operations, services and fees, and its current written disclosure statement is available on the SEC’s Investment Adviser public website at https://apofinancial.com/disclosure/.
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