April 4, 2014

Importance of Estate Planning

It is never too early (and you are never too young) to think about estate planning. Regardless of the size of your estate, you need to think about what will happen to your assets after you die to ensure that your family and financial goals are met.  An estate plan can be as simple as having a will and naming beneficiaries for your retirement plan.  However, for most individuals, it can be much more complicated.  A comprehensive estate plan generally includes a will or revocable trust, assignment of power of attorney, and a living will or health care proxy.   It can also include the creation of trusts and the implementation of a plan for lifetime and charitable gifting.

The following considerations  factor into the importance of creating an estate plan or reviewing your current estate plan:

  • There has been a material change to the gross value of your assets, marital situation, or you have changed your state or country of residency.
  • You do not currently have a will or trust.  The rules governing who will inherit your assets if you die without a will vary from state to state and can result in your assets not going to those you would expect.
  • You have not designated who will serve as guardian for your children upon you and your spouse’s death.
  • You have not authorized someone to handle financial matters or health-related matters on your behalf if you were to become disabled.

You should think about estate planning as a continuous planning process and should discuss your plan with your attorney and tax advisor on a regular basis to make sure your plan addresses changes in your family status, wealth or the tax law.

As part of your estate plan, you should consider making lifetime gifts.  Most transfers of property are subject to federal gift tax; however, gifts of up to $14,000 per donee per year are generally covered by the gift tax annual exemption.

In addition, every individual can transfer a certain amount during their lifetime without paying gift tax.  For 2014, the inflation adjusted amount is $5,340,000.  Any exclusion not used during lifetime is available to reduce estate tax at death.  For many taxpayers, the exclusion of $5,340,000 (almost $10.7 million per couple) is more than enough to accomplish their wealth transfer objectives. In addition, with the introduction of portability in 2013 (where one spouse can transfer their unused exclusion amount to their surviving spouse), additional planning opportunities are  available.  Still, for many  clients, their assets will exceed the applicable exclusion and estate planning is crucial to minimize estate taxes and maximize wealth transfer.

Seeking the advice of an experienced tax professional is important when implementing an estate and gift plan.  We will be hosting a “Basic Estate Planning” workshop in the Fall and will send out details later this year. In the meantime, we are happy to discuss the estate planning process with you. Please call us if you have questions.