You worked hard your entire life and built up a sizable nest egg to fund your retirement. As you approach the finish line, you need to protect yourself and your legacy to ensure that your assets can be passed on to your loved ones without too many headaches.
Part of the estate planner’s job is to be sure you understand the basics of how your estate plan works. He or she should make it clear how to implement and maintain the plan. You also need to know how it will work for your beneficiaries. You don’t need to understand all the legal angles – but you do need to understand the fundamentals! This article aims to introduce some of those fundamentals and make you more comfortable with the estate planning process.
Update Key Financial Information
As the year comes to a close you want to update your key financial information and ensure that your spouse and loved ones know where to find important documents. This includes your “digital estate” as online and cloud information because increasingly prevalent.
- Safeguard Accounts and Passwords – Make a list of each service and how to access its information. Common services include:
- Computer & phone access
- Email & cloud storage
- Bank & financial accounts
- Safe deposit & home lockbox access
- Probably the easiest thing to do is maintain basic account info in a home safe. Many people rely on safe deposit boxes, but be aware that many banks prevent access until the will is probated.
- Update Your Beneficiaries – Take a look at the beneficiaries you have on file for your financial accounts to make sure they still make sense. For a 401K it could have been decades since they were first set-up. Make sure your estate plan considers whether assets are owned individually or jointly with your spouse. Also ensure that it contains provisions for children and grandchildren as both adults and minors.
- Review Your Will – This is a basic part of the strategy but one that is also overlooked and ignored. Your will is a legal document in which you declare specifically who will manage your estate, including homes, household items, and furniture after you die. Your will can also designate whom you wish to become the guardian for any minor children or dependents. Your will should be reviewed at least every few years – more often if there is a change in your finances or personal circumstances.
Optimize Your Estate Tax Situation
The law offers several possibilities for optimizing the taxes on your estate now, while you’re in retirement, and after you’ve gone. Magellan Financial can help you grow your after-tax returns by optimizing the structure of your assets. Here are some of the more common techniques we’ve helped clients implement:
- Personal Trusts – A trust is a fiduciary arrangement that allows a third party to hold assets on behalf of beneficiaries. Building blocks typically involve the assets, the objective and the provisions. A trust can help you reduce taxes, protect the estate from creditors and avoid your state’s probate process.
- Plan for state estate taxes – While Federal estate tax rules and changes make the headlines, certain residents need to be aware of whether their state’s inheritance laws are decoupled from Federal regulations. Just because you’re below the Federal estate exemption amount ($5,700,000 in 2019) doesn’t mean your estate will avoid state taxes.
- Develop a strategy for low tax cost-basis – Work with an estate planner to ensure that a stepped up cost basis is maintained upon the transferral of your assets. Note that when gifted, the party typically assumes the original cost basis. But certain trust provisions can be utilized to minimize the impact. We can show you how.
- Convert to a Roth – When creating an estate plan you will want to consider Roth IRA/401K conversions or contributions. By converting to Roth accounts, it can be an effective way to hedge against the direction of future tax rates. It’s also a smart estate planning strategy because it will reduce estate taxes and eliminate the income tax that heirs would otherwise have to pay.
Contingency Plan for Your Care
Contingency planning for your end of life care encourages you to record and share your healthcare preferences with loved ones. By expressing yourself when you have a sound mind, you establish your desires and make end-of-life decisions easier on your loved ones. Key components typically include:
- A living will – A living will outlines specific instructions for your medical care should the need arise. Ensure that your wishes are clear and documented, and then have a copy of your living will provided to both your primary care physician and close family members.
- A healthcare power of attorney – Even if you have a living will established, situations could still arise that are not covered by your instructions. A healthcare power of attorney is empowered to make medical decisions for you when you are unable to do so yourself.
- Power of attorney – A power of attorney guarantees that there will be someone to make decisions in your best interest that may be difficult for a loved one to make. This trusted person can make a number of financial and familiar decisions in your stead including using your assets to pay bills. Someone with a limited power of attorney can make more specific decisions (outlined in the agreement) but usually cannot withdraw funds from your accounts
Estate Planning Services We Assist With
We at Magellan Financial provide a variety of wealth management services that focus on Estate Planning Strategies and Access to Trust Services through affiliates, including philanthropic and personal trusts. We will help you understand the difference and help you conclude your plans for the future. These services include:
- Philanthropic donor services
- Personal trust services through Wells Fargo affiliates
- Trust-fund portfolio administration
- Estate planning strategies
- Charitable Trusts
There are many strategies and personal circumstances to consider when dealing with estate planning so you want to make you consult a qualified legal or tax professional to discuss these types of strategies.
No matter where you are along your retirement path, send us an email to learn exactly how we’ve helped plenty of people in similar situations.
Trust Services are available through Wells Fargo Bank, N.A. and Wells Fargo Delaware Trust Company, N.A.
Wells Fargo Advisors Financial Network does not provide legal or tax advice.