Don't Make These Common Mistakes in Your Estate Plan

Don’t Make These Common Mistakes in Your Estate Plan

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In the minds of many Americans, estate planning is something they do once, file away, and forget about. However, without being aware of the potential impact, people will make gifts during their lifetime or change listed beneficiaries on accounts. Which can have enormous unintended consequences on their will or trust. Review your estate plan regularly to help to prevent these common mistakes.

Gifting Money During Your Lifetime Without Changing Your Will

It is a common practice for people to include cash gifts in their will. Whether money for a favorite nephew or niece, childhood friend or household worker, there can be significant sums of cash for distribution to inheritors listed in your will. Often, family members learn these gifts were already satisfied during your lifetime. They hear the story about the joy it brings to the recipient.

Without modifying your will after gifting cash during your lifetime, the named individual will still get the gift when the will enters probate. Smaller gift amounts may not create issues in an estate but don’t match your intentions. More considerable sums of money can create situations that financially break an estate plan. A court will not know that a gift was satisfied during your lifetime either, and there is no one left to speak to the intention of the will, resulting in a second gifting of cash.

The cash gift is paid again if the inheritor chooses not to be forthcoming. While many in the family will view a lifetime gift as an advance on an inheritance, if the recipient does not agree, you may have to litigate, which can be costly. If you give lifetime gifts of cash and do not intend to give a secondary gift upon your death, change your will after the gift.

Too Few Assets to Fund a Trust

If your trust is years old and its overall assets have decreased in value, reviewing the gift provisions outlined in your trust is crucial. You may not have enough assets to pay for all of the gifts. It is not unusual that in flush financial times, people create grand estate plans. Leaving cash to family and friends and creating trusts for others’ benefit. These good intentions can fall far short of reality in leaner times, leaving some people to receive less than hoped or nothing at all.

Sadly, it will be the lawyer or trustee’s responsibility to advise these recipients of what they were supposed to receive from the trust, but unfortunately, they will not. Regular review of your trust and its goals can avoid this situation. Crafting a trust with realistic goals or making amendments to those goals during less abundant times will keep the trust’s intentions valid and achievable.

Thinking All Assets Pass Through Your Will

Some people leave a lot of money that they believe satisfies all the gifts listed in their will. They total all their assets, which seems large enough to address all beneficiaries. However, all assets may not pass under the will.

Probate assets will pass through the decedent’s name into their estate and be distributed according to the will. In contrast, non-probate assets pass outside the will, usually  through a beneficiary designation. Knowing the difference between the asset classes provides the true value in the estate and receives distribution according to your will. Also, be clear your estate will need to deduct any outstanding debts, expenses, and taxes. Which will reduce the probate asset number again.

Changes to Beneficiary Designations

Beneficiary designation changes can have unintended consequences on your estate plan. The most common problems occur with changes to beneficiaries in life insurance policies. The policy may be payable to your trust. To cover the cost of bequests, pay estate taxes, or shelter monies from estate taxes. Similarly, a retirement account due to an individual but changed to another may result in adverse income tax consequences. You may upend the intention of your estate plan by changing the beneficiary designation without thinking it through.

These are some of the more common mistakes people make that can negatively affect your estate planning goals. Regularly review your intentions and legal documents with your estate planning attorney. Clarify changes in assets and asset types, lifetime gifts, beneficiary designations, and joint ownership additions. Doing so will keep your legacy as you intend it to be.

For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

 

Planning an Estate for Non-Traditional Families

Planning an Estate for Non-Traditional Families

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The practice of planning an estate for non- traditional families is evolving due to changing family structures. In the past, a traditional family consisted of a husband and wife who married young, bought a home, had children, and worked for financial stability and security. In 1949, 79.8 percent of American households were married couples, but in 2021 that number declined to 47.3 percent.

The rise of blended families, cohabitating couples, artificial reproductive technology, same-sex marriages, and other trends mean only one-third of American households are “traditional” families. The other two-thirds are non-traditional families experiencing unique needs that challenge current estate planning models.

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More complex family structures tend to avoid estate planning. But the absence of planning leads to an increase of needlessly squandered assets lost. Estate taxes and family infighting over an inheritance. Dying without a will (intestate) means your estate will go through probate. Then, it follows the state’s intestacy laws that currently don’t favor unmarried partners and step-children. Fortunately, proactive planning with an estate attorney to build a modern plan can provide the best outcomes for the legacy and security of your non-traditional family.

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Blended Families

In particular, if you divorce, remarry, have additional children and grandchildren, or experience other significant changes in your family dynamics, do not delay creating or updating your estate plan. While the decision-making about specific assets, beneficiaries, and transferring wealth during family changes sounds overwhelming. Your estate planning attorney is there to guide and support you. Updating your plan can avoid unintended consequences such as strained relationships, wasted financial resources, and more.

Conventional estate planning tends to favor traditional family structures and equal wealth bequests; however, this may not be your intention in a blended family with step-children. Creative solutions that reflect your contemporary family structure can successfully address these issues. Customizing your plan to meet unique needs makes more sense.

Pre- and Post-nuptual Agreements

Clarify your needs using pre and post-nuptial agreements if you intend to remarry. A new spouse needs to be aware of how you intend to distribute your assets to your children, mutual children, spouse’s children, and any other beneficiary. Early on, agreement on critical decisions about estate and gift tax exemptions can prevent future problems. A family law attorney can work with your estate planning attorney to ensure that the agreement structure complements your intentions regarding your estate.

Trusts and Other Strategies

In a blended family, you may consider alternative strategies to transfer wealth. If you choose to remarry, you may promote better family relationships with lifetime gifts to your children rather than after-death bequests. You can also use payable on death accounts which transfer directly to the beneficiary outside of your will and any trusts if necessary.

In the case of trusts, expand and clarify estate planning provisions and potential issues that may easily be overlooked, like:

  • Scenarios where your children enter into a committed relationship without marriage and have children
  • Representatives or trustees who may not share or understand your goals for future beneficiaries. For example, if you create a trust for grandchildren, will you include future step-grandchildren? Or those born from artificial reproductive technology? Will a biological trustee follow through with your wishes for non-biological children, or do you need a neutral third party?
  • Cultural and religious traditions that don’t align with your estate planning documents related to inheritance and end-of-life wishes. Do your trust provisions, investments, and discretionary distributions reflect your values? If you are against fossil fuels, will you limit trust equities to permit only green energy investments? Do you have specific political views or particular people you do not want receiving any of your assets second hand? Does your end-of-life plan reflect your spiritual beliefs?

If your family system is non-traditional, be aware that most US laws and estate planning practices tend to favor a traditional family structure. Which can leave some of your loved ones overlooked without careful planning. Knowing about these default favoritisms and standards should help you think carefully about specific provisions for your non-traditional family. Open discussions with your family and estate planning attorney will help you craft a better and more representative plan suited to your family.

For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

Tax Reform with Estate Planning

Tax Reform with Estate Planning

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To stay on top of changes to federal estate tax laws, gifts, and generations skipping tax exemptions, it may be necessary to revisit and update your estate plan annually. On the first day of 2026, the federal tax assessment on estates worth at least $11.7 million, indexed for inflation annually, will revert back to pre-2018 exemption levels. Any estate valuation over this amount will trigger a 40% federal estate, gift, and GST tax rate. As tax reform law affects your estate planning strategy, it is wise to review your unique estate situation routinely.

Changing Estate Tax Exemption Amount 2017 – 2025

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Estate Planning Strategies to Deal with New Tax Laws

Even if your current taxable estate is under 12.6 million, you must still plan pivoting strategies for future estate tax changes. When the current federal tax laws sunset on January 1, 2026, the new laws will significantly change various estate planning techniques. Predicting exact numbers is impossible; however, some proposals plan to reduce estate and gift tax exemptions from $12.6 million per individual taxpayer to $3.5 – $6.85 million. Focusing on your plan today can help you position your estate for the changes ahead. Lifetime gifting is a strategy that still makes sense even if you are well below the $12.6 million threshold.

Estate Tax Strategies Designed for Your Situation

Additionally, checking your existing estate plan documents to ensure they will align with your goals is crucial as current federal exemptions can demonstrably affect your plan. For example, suppose your will states an amount equal to your remaining federal exemption will go to a “bypass trust” or “credit shelter” for your surviving family. In that case, the remainder passes outright to your spouse. Therefore, if you die with a $10 million estate today and used no exemption during your life, the whole of the $10 million would pass in trust under current law. Aside from not being aligned with your wishes, depending on your state of residence, this scenario may subject your estate to a higher state estate tax upon your death. Understanding the complexity of these tax laws and how they affect your estate plan is critical for protecting your family’s inheritance.

Gifting Amounts Over the 12.6 M Threshold

Suppose your taxable estate is currently over the $12.06 threshold. In that case, the most straightforward strategy is to begin giving away more money, remembering that current exemption amounts provide a limited opportunity to make these larger tax-free gifts. Gifting strategies remove the gifted asset from your taxable estate and all appreciation on the asset from the gift date until you die. Reviewing your current estate documents with your attorney can identify if these changes are warranted.

Many pre-2018 tax-saving strategies still make sense under the current law. Annual gifting exclusions of $16,000 per recipient, and $32,000 if spouses split their gifts, are permissible without using any lifetime exemptions. Annual exclusions for medical or educational purposes are also a viable strategy remembering that contributions to a 529 education plan will eat into the annual exclusion amount. Known as “Med/Ed” Gifts, variable amounts are gifted for limited purposes. The payment, however, must be made directly to the educational or medical provider. Your estate lawyer can help you understand these gifting “freebies” and how they can complement your estate planning strategy.

Estate Tax Planning with Trusts

Suppose you employ a Crummey Trust strategy for gifting while minimizing tax consequences. In that case, the annual exclusion gift to a trust instead of outright gifting requires a Crummey Trust notice to beneficiaries in connection with the gift. There are many trust types and how they may be useful to your estate depends largely on your family and financial situation. Tax minimizing estate trusts can also include:

Estate Planning and Tax Laws Vary by State

At a state level, your estate taxes will depend on which state you reside in and if you have properties in multiple states. Each state has different gift and estate tax laws. Your estate planning attorney can explain the discrepancies between federal and state law exemptions amending your estate documents accordingly. If you live in a state with estate taxes, it is crucial to address these laws and how they affect your federal estate tax planning strategies.

Because of the decision to sunset existing tax laws, even without Congressional action, the exclusion rate will reduce by half effective January 1, 2026. While federal exemptions are still relatively high, there is a short time frame to reduce your taxable estate through additional gifting or establishing new trusts. Your estate planning attorney can determine how to optimize your gifting strategy and if your estate planning documents require significant changes.

For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

What Life Insurance has to do with Estate Planning

What Life Insurance has to do with Estate Planning

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What Life Insurance has to do with Estate Planning

In the estate planning process, life insurance does not appear to affect how assets are disposed of at first glance. However, life insurance can be an integral, indispensably important part of a well-thought-out estate plan. There are numerous other benefits to owning a life insurance policy. Aside from providing a large sum of money to beneficiaries.

  • Life insurance provides immediate cash upon death that can pay debts, final income taxes of the insured, and funeral expenses.
  • Life insurance cash can also pay estate taxes and avoid the forced sale of assets.
  • Mostly, the proceeds from life insurance will pass to the named beneficiary free of income tax.
  • Life insurance proceeds can transfer to a trust as part of a will the insured created for the benefit of minor children, special needs, or elderly relatives.
  • The proceeds of a life insurance policy can be payable to someone other than the insured’s estate and avoid passing through probate when owned by an irrevocable insurance trust. For example, the funds can pay marital settlement obligations for spousal or child support.
  • If the insured owns a closely-held business, a life insurance policy can fund a buy out of their interest.
  • Proper beneficiary designation forms of a life insurance policy prevent proceeds from going through probate.

Do not underestimate the importance of having cash funds immediately available in an uncomplicated way. Often the passing of a loved one or family member comes with a string of expenses that often exceed cost expectations. Much of what Americans have resides in investments like 401ks, IRAs, housing, and other illiquid assets with very little cash on hand. Life insurance proceeds protect families from having to force the sale of these assets at unfavorable tax rates. Some inheritable assets come with immediate payment requirements. Homes not fully paid off, cars, and the like can leave families with short-term liabilities requiring cash.

Understanding Estate Planning Strategies with a Life Insurance Policy

One of the more popular estate planning strategies that fit many situations is an irrevocable life insurance trust (ILIT). Though a beneficiary or third party cannot rescind the trust, modified, or amended post creation, it still offers heirs several financial and legal advantages. These advantages include asset protection, favorable tax treatment, and assurance beneficiaries use the proceeds in a manner concurrent with the benefactor’s wishes. Typically, life insurance policies are the chief assets held in an ILIT.

Before purchasing a life insurance policy, particularly if you want to create an ILIT, speak with your estate planning attorney regarding potential income and estate tax consequences. If you have an estate large enough, it can be subject to federal and state estate taxes depending on the applicable laws in place at the time of your passing. Your ILIT should be in place before binding a life insurance policy to it. Remember that states have different laws regarding an ILIT; to avoid problems, your ILIT must follow your state’s rules.

Using a Gifting Strategy for your Life Insurance Plan

It is possible to gift an existing life insurance policy to your ILIT. Unfortunately, if you were to die within three years of making the gift. The policy amount can be included in your estate for tax purposes due to a rule known as a “lookback period.” In effect, this isn’t making the policy proceeds taxable, but it adds the policy proceeds amount to the total value of the estate, in turn making it part of your estate subject to taxes. As federal estate tax exemption amounts frequently change, it is prudent to fund your ILIT by purchasing a new policy. Doing so will avoid the possibility of a lookback period.

When using an ILIT, whether or not you are married, use the second to die, survivorship policy, or are single and have an individual policy must be considered. Choosing between variations of permanent life insurance for your ILIT, such as whole standard life, universal life, and variable life insurance, can be confusing. Your estate planning attorney can guide you to your best option.

If you own a business and one adult child will take over the business while the other adult children are not interested or involved in the enterprise. Then the life insurance proceeds can provide the cash. To buy out those heirs’ business interests while leaving the business intact. Blended family systems can also benefit from life insurance payouts to ensure that all children receive an inheritance. Not just the children of the last surviving spouse.

Life insurance should be a part of your family estate plan. It can increase the wealth your heirs inherit. And provide a ready source of cash for immediate financial obligations after your death. Which form of life insurance best suits your needs will depend on your age and situation. Speak with your estate planning attorney about how a life insurance policy can be an effective way to transfer wealth to your beneficiaries. Please contact our Ruston, LA office by calling us at (318) 255-1760 to discuss your situation. We are here to help.

 

 

 

 

 

 

 

Why You Should Write a Letter of Intent

Why You Should Write a Letter of Intent

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Why you should write a letter of intent. There are numerous issues that can be addressed by a letter of intent (LOI), both in the business arena and in more personal contexts. Your LOI is a valuable piece in your estate planning, and although it is an informal letter, it can more fully represent your intentions after you die. Everyone knows they need to make a will, but this lesser-known document can also be a crucial estate planning tool.

What is a Letter of Intent?

The letter itself has no legal standing, so it can’t supersede a will. Still, a letter of intent, also called a letter of instruction, can be of enormous practical and emotional value to your loved ones. A letter of intent conveys essential information about personal and financial matters in combination with your will. Since letters of intent are not legally binding and do not replace a will or trust, they are not a requirement; however, they are an excellent complement to those legal documents.

 

Why You Should do it

A parent may write an LOI to express their hopes and dreams for their children in detail if both parents die, mainly when their children are still minors. An LOI often influences family court judge’s decision-making concerning children. Particularly, if you have a child with special needs, an LOI can outline how to help create a more stable world for your child’s future challenges. The letter may outline a child’s current needs and routines and any aspirations the parents have of their future employment, relationships, and independence of living under the oversight of a named guardian in the parents’ wills. It is crucial to have an estate planning attorney review any LOI in the circumstances of minor children to ensure it echoes the same structure and sentiments of your will.

Drafting a letter of intent is also for more general purposes, guiding your family to understand your intentions after you are gone. For instance, you may want to include funeral and burial arrangement information in your LOI. Outline whatever plans you have regarding the type of viewing and funeral service you prefer, if any. Include whether you desire cremation or burial. Your letter of intent may include who you want to officiate your funeral service and include special touches like seating arrangements for family, specific religious passages, and music selections. You can also request your family members inform people of your passing by providing their names and contact information in a list.

What Does a Letter of Intent Include?

A letter of intent is ideal for leaving information about bank accounts, personal assets, and any hidden stashes of cash or precious metals. For bank accounts and the like, please list the names and contact information of the professionals familiar with your accounts to help your family locate them. Remember to include the physical location of all relevant documents such as your will, trust documents, titles, deeds, insurance cards, driver’s license, birth certificate, marriage license, divorce documents, military paperwork, social security card, passport, mortgages, and outstanding debt. It is better to include too much information rather than too little. Your family needs as much data as possible to piece together the details of your estate.

Do not forget to include relevant digital information in your LOI. Much of our lives now reside online; therefore, leaving access information to your digital assets is very important. Include login URLs for digital accounts such as cryptocurrency, email, social media, income-producing storefronts, or influencer accounts, and the devices themselves such as smartphones, tablets, and laptops or PCs. Provide user names and passwords, PINS, and account numbers for each account. Make plans to gift these devices if you desire and list which individual receives which device.

Your personal items, particularly sentimental ones, may become a source of contention among your loved ones. Whether jewelry, artwork, fine china, or other valuable collectibles, it is best to sort out to whom these items will go and include that list in your letter of intent. You may also include wishes for the care of any surviving pets you might leave behind. Your letter is your final opportunity to include personal statements about your property division and your hopes and wishes for the future to individual family members.

Conclusion

Make sure that your letter of intent does not contradict your existing estate plan. Your LOI may be changed whenever you prefer throughout your lifetime, and it is good to revisit its contents as you accumulate more assets and should your feelings change as to who shall receive what. It is helpful to provide the most current copy of your LOI to your executor and your attorney. A thoughtful LOI can be an authentic source of comfort and peace to your family during their time of grief. If there is a disparity in your bequests, a letter of intent can help your family come to terms with your decision-making process and help loved ones move forward.

If you would like to discuss creating your estate plan or LOI, please contact our Ruston, LA office by calling us at (318) 255-1760 We would be honored to assist you!

Inheritances can be Provided through Charitable Trusts

Inheritances Provided through Charitable Trusts

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Inheritances Provided through Charitable Trusts

An irrevocable trust that provides income to heirs while benefiting you or a charity is a charitable trust. If you are philanthropically minded with nonessential assets like stocks or real estate, inheritances provided through charitable trusts can offer many financial advantages for all those involved. Once in place, a charitable trust is irrevocable even if you experience a personal or business financial loss. There are two primary charitable trust types:

Different Forms of Trusts

Charitable Lead Trust (CLT) – This trust is designed to distribute a portion of its proceeds to charity for which you receive a tax deduction equal to the payments. The remainder of the principal is distributed among your beneficiaries.

Charitable Remainder Trust (CRT) – This trust grants income to a designated individual by distributing non-income-producing assets first placed in the trust. A charitable donations tax deduction applies to the remaining assets earmarked for the charity. The chosen charity receives the remaining assets at the end of the trust’s term or upon your death.

Providing Different Options

Each trust type comes with many options to consider and strategies for maximizing its benefits. Both trust types do not require you to choose your charity beneficiary. Instead, you create a donor-advised fund that directs payments from either trust type to your chosen charities. This tactic allows flexibility to change your mind about an existing charity or add a new one.

For income-producing purposes to heirs, a charitable remainder trust provides options from the sale of your non-income-producing assets. For example, purchasing a life insurance policy can have premiums paid by the charitable remainder trust while using residual funds to support philanthropic intentions.

Charitable Remainder Trusts are also known as a split-interest trust, making payments from income first to the beneficiary or beneficiaries in a set amount with the remaining income supporting the organization, which is the opposite of a Charitable Lead Trust. The two ways to receive trust payments in a Charitable Remainder Trust are either a fixed annuity or a percent of trust assets known as a unitrust.

In a Charitable Remainder Annuity Trust, it is not permissible to change the annuity amount once the trust is created, so it is best to over-fund rather than not have enough. An annuity trust provides a fixed dollar amount each year even if the trust’s income is less than anticipated.

A Charitable Remainder Unitrust allows receipt of a fixed percentage of the trust’s assets each year. The trust’s value receives an annual appraisal which determines the dollar amount of the set percentage for distribution. This funding method ties income to the trust’s success, providing more in good years and less in years when assets are underperforming. If trust payments are not a significant source of income to beneficiaries, this can be a good option. The IRS requires a minimum five percent distribution of the trust valuation annually.

Working with your Attorney

Work with an estate attorney to design a charitable trust. They can help you determine which charitable trust type is best for you. And what assets to place in the trust. An estate planning attorney will help you identify beneficiaries and payment strategies. As well as the value of your tax deduction. Once you draw up the trust document, the assets will be moved to fund the charitable trust unless you create the trust as part of your will.

The charity you seek to benefit may have preferences about how and when to donate. Speak with the organization before creating an irrevocable charitable trust. This trust type can lessen your income, estate, and capital gains taxes by making 501(c)(3) donations to a charity and providing a steady income to heirs. Creating a charitable trust is a practical, multi-pronged approach to leaving your legacy. Permitting the allocation of money for both a charity and your beneficiaries while realizing specific tax advantages.

For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

 

 

Having an Estate Plan Discussion with Your Spouse

Having an Estate Plan Discussion with Your Spouse

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To create an estate plan that meets your family’s needs, you need to speak to your spouse or life partner.  Before meeting with an estate planning attorney, it is best to discuss your ideas to present a united goal. This conversation can be challenging if you and your loved one have different points of view about your future and the legacy you will leave behind. Suppose you have a blended family; how do you choose to provide for them? There is a lot to process with many emotional topics regarding your mortality, being fair to children, and more.

First, you must decide what elements in an estate plan are most important to you. Once you have a clear idea, you can readily communicate your needs and identify avenues of compromise. At the start of your discussion, state some clear objectives to promote a positive and productive conversation.

Children in Blended Families

Some couples will agree on family beneficiaries, although a blended family with stepchildren may find it challenging. Looking at the big picture first and then fleshing out details can help minimize any tension. There will be back and forth as you craft your ideas and negotiate priorities. Even if you don’t agree on everything, you can discuss why certain elements are crucial to you and openly discuss your point of view until you reach a compromise.

A Partner’s Right of Survivorship

“Rights of survivorship” and “Joint Tenancy” do not apply in Louisiana. Thus, when you pass away, your property will not automatically go to your spouse, much less an unmarried partner. Because of this, it is critical to create an estate plan specifically addressing how to provide for your loved one.  Some payable on death accounts and other designated beneficiary accounts like IRAs or 401(k)s will pass outside probate and be paid to them directly; however, in the absence of a will and other estate plans, the surviving partner often has no legal rights to automatic inheritance. It can be contested. Children inherit before the spouse.

Setting the Stage for Your Talk

Choosing the right time and place for a serious conversation can lead to a positive discussion. The best circumstances for a talk are different for each couple. Be sure the environment isn’t full of unfinished chores or lots of activity that can sidetrack your estate planning intentions. If you meet resistance to future planning, talk about why you believe estate planning is important to protect yourselves and your family.

Take some general notes and stay open to your partner’s or spouse’s perspective. Avoid being judgmental. If the meeting begins to focus on how you disagree, take a break and give yourself some time to reflect on those issues and revisit the topics when frustration levels are lower. Your estate planning attorney, who understands the best way to structure your estate and is a neutral third party, may be able to help resolve some sticking points later. Continue to focus on the areas where you can agree.

Responsible Estate Planning Takes Time

You will need to craft a will, power of attorney, living will, and healthcare proxy. Some couples will require trusts and insurance policies as part of their estate plan. Your estate plan will cover asset preservation, management, and distribution after you die. It will identify those individuals who will act on your behalf to close your estate properly. If you become incapacitated, your properties, financial obligations, and medical wishes will be clear.

If you already have an estate plan in place, don’t forget the importance of reviewing your documents every couple of years or when family circumstances change surrounding births, deaths, marriage, and divorce. If there are substantial financial changes, it is also wise to review how you plan to address these ups and downs.

While it can be uncomfortable for some couples to broach estate planning, it is a crucial step toward securing your future together and your family’s legacy after you are gone. Approach conversations with a positive attitude and problem-solving spirit. Let us review and guide your process to create an estate plan well-suited to your life and wishes. Contact our Ruston, LA office by calling us at (318) 255-1760.

 

Estate Planning: Six Mistakes to Avoid

Estate Planning: Six Mistakes to Avoid

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Estate planning: six mistakes to avoid. It can protect your assets, interests, and the people you love if you plan ahead. Sadly, many individuals make costly mistakes without proper advice and guidance from a qualified estate planning attorney. Beyond undermining your intent and diminishing your financial legacy, poor planning can create additional stress to your heirs in their time of grief.

Six common errors frequently happen during the estate planning process. These mistakes often occur because the complete financial picture was not fully considered. It is easiest to avoid estate planning mishaps by knowing what they are before you begin or looking for these errors when reviewing and updating your plan.

Financial Procrastination

Financial procrastination causes problems. While examining your mortality and making end-of-life preparations is not a particularly fun activity, try viewing it as helping and enhancing your loved ones’ future lives while creating a sense of peace during your own.

The need to protect your finances using wills, trusts, and power of attorney (POA) documents is not solely the domain of the elderly. Putting off the drafting of legal documents necessary to protect yourself and your inheritors can lead to disastrous outcomes.

By far, failing to create an estate plan is the most common mistake. Even if you do not have a lot of money, you need a will to protect any minor children you have by naming their guardians. Your will also ensures your asset distribution to heirs is carried out according to your intentions when you die and names a representative to handle debt obligations, final taxes, and other estate administrative duties. Dying without a will or “intestate” can lead to dire consequences.

Outdated wills, forms, and POAs create problems. If you made a will twenty years ago and have not reviewed and updated its contents, chances are many of the details no longer reflect current assets or beneficiaries. Estate planning is not a “set it and forget it” proposition. Reviewing estate planning documents and beneficiary forms every two years is generally adequate, barring a major life change such as divorce, birth, death, remarriage, or relocation to another state.

Beneficiaries without coordination can create expensive oversight. Beneficiary forms for retirement accounts like 401(k)s and IRAs, annuities, and life insurance policies may constitute a significant portion of your estate’s assets. These beneficiary forms are legally binding and will supersede the contents of your will. Failure to update beneficiary forms can lead to an ex-spouse receiving assets that preferably would go to your heirs. Routine checks of all beneficiary designations are best practices for estate planning.

Failing to title trust assets properly can lead to probate. While not everyone requires a trust, those who do must carefully retitle their assets into the name of the trust. Forgetting to add more recently purchased property or opening a new account requires you to title them into the trust to receive trust benefits. Whether real estate, cash, mutual funds, or stocks, if you fail to move the asset into the trust, they become subject to the probate court, possible tax consequences (depending on the trust type), and a public record of these assets.

Life insurance can trigger estate tax. Life insurance can provide heirs with liquidity without the sale of assets and tax consequences when handled correctly. However, if a wealthy individual dies while maintaining ownership of their life insurance policy, they may inadvertently create a tax event for their heirs. Although life insurance death benefits are not subject to state or federal income taxes, any “incident” of ownership by the decedent can create an inheritance tax.

An estate planning attorney can help shelter life insurance proceeds from high-value estates by gifting the policy to an Irrevocable Life Insurance Trust (ILIT) or draft a new trust to purchase a new policy where the trust is the owner and beneficiary. A policy owned by the trust does not create a taxable situation to death benefits. Your attorney’s careful structuring of this trust type is complex but can provide proper protection.

Joint ownership of assets with your children can lead to disastrous consequences. Naming your children as co-owners of assets, even digital, permits their creditors to access your money. The better way to address the situation is to give your adult child power of attorney and assign them as a beneficiary to a payable on death bank or brokerage account. This tactic permits them to access your funds if required during your lifetime. However, it keeps your assets from your child’s estate and away from their potential creditors.

Ultimately the biggest error you can make is not finding the right estate planning attorney to guide you. This specialized attorney receives training on avoiding probate, tax implications, and asset protection if you require long-term care. Proper planning with the right guidance will help you avoid costly estate planning mistakes and protect your family’s future financial well-being. If you have questions or would like to discuss your personal situation, please contact our Ruston, LA office by calling us at (318) 255-1760.

 

The Great Transfer of Generational Wealth

The Great Transfer of Generational Wealth

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Transfer of Generational Wealth

This financial time is unprecedented in human history. Baby boomers preparing to pass on their legacies through estate plans put America at the brink of the largest ever transfer of wealth. Over the next 25 years, projections estimate 68.4 trillion dollars will be in motion to create an unprecedented transfer of generational wealth.

The post-WWII economic environment allowed the growth of assets during decades of economic prosperity. Rising real estate values, stock markets, and favorable tax policies contributed to the baby boomers’ ability to aggregate significant wealth. These 45 million households will see their generational wealth pass to Generation X and millennial inheritors, dramatically shifting the landscape of American wealth management.

Different Financial Experiences

Baby boomers collectively hold thirty to forty trillion in assets, controlling roughly seventy percent of all disposable income. While families of already established generational wealth may have plans in place, much of the upcoming wealth transfer hails from self-made men and women who have avoided discussing estate plans and family fortunes with their heirs. Predictions are that Gen X will inherit about 57 percent of these assets, with millennials inheriting the rest. Yet the mechanisms for inheritance through sound estate planning are missing in many of these family systems.

Wealth management groups and estate planning attorneys posit that inheritors will needlessly lose much of their wealth due to parents who failed to develop comprehensive end-of-life plans. On the other side of the equation, younger generation inheritors must ramp up their knowledge about asset management to grow their inheritance for future generations.

Generation X and millennials have vastly different financial experiences and attitudes towards money than their parents. On average, while millennials are the highest-earning generation, they have significantly less money, controlling just 4.6 percent of US wealth in 2021. They have lower levels of financial literacy, are less likely to own a home, and have less interest in investing in the stock market. They also tend to have higher debt after experiencing two recessions before the age of 40, cost of living increases that outpaced wages, and increasing college tuition and vehicle loans.

Changing the Landscape of Financial Planning

These younger generations will also change the landscape of financial planning and management. Financial firms will have to bridge the gap of immediate expectation. With a generation raised in an era of enormous technological transformation. Smart technology can provide an incrementally higher return on investment through transaction speed alone. Digital financial tools and apps will be the norm, including robot-advisors as a convenience for investing.

Are these younger generations ready to be stewards of generational wealth? Will they see the need to protect this wealth through comprehensive estate planning? To better protect their inheritors’ interests, baby boomer parents can include their children in estate planning goals. The older generation can implement or update an existing plan and guide their inheritors to protect from squandering assets.

Protecting Your Assets

Some family systems may find the surest and safest way to protect generational wealth is via trusts. Both revocable and irrevocable trusts can create structure and limit new inheritors’ access to assets. A trust can grow wealth and also save on taxes. The objectives and conditions of a family trust are wide-ranging and easily tailored to a family’s specific needs.

Charitable trusts and charitable remainder trusts can generate income for heirs while protecting assets and favorable tax consequences. There are also asset-protection trusts, testamentary trusts, and special needs trusts. A qualified estate planning attorney will assess the best trust type(s) for you and your family based on your unique set of parameters. With trillions of inheritable dollars in motion over the next twenty-five years in America, proactive estate planning is key. To securing generational wealth for your family. If you would like to discuss your personal situation, please contact our Ruston, LA office by calling us at (318) 255-1760.

 

 

Add to Your Estate Plan with Life Insurance

Add to Your Estate Plan with Life Insurance

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Grieving loved ones should not need to inherit assets only to find they are not accessible for cash expenditures they will be responsible for after you pass away. Most retirees’ assets are in homeownership and retirement accounts, requiring a sale to get cash. Life insurance can provide the liquidity needed when managing and distributing your estate assets. Your policies can address final expenses, estate taxes, business ownership, estate equalization, probate, and special purposes depending on your circumstances and the number of assets at hand.

Final Expenses

The average funeral cost in the US is nearly $8000 and somewhat less with cremation. The price becomes even greater when adding a burial plot, vault, or headstone. Even without a funeral service, cremation ranges between $1,000 and $10,000, depending on location, with the average around $4,000.

Some debts of the decedent will become part of the estate’s responsibility. These debts can reduce the remaining assets for your heirs, requiring a cash payout. Creditors may present the estate with outstanding bills and even litigate for payment.

State and federal final income taxes are a requirement. The government will seek payment of any back taxes in addition to those taxes owed in the year in which you die. Life insurance death benefits can help address these final expenses, helping meet the estate’s obligations.

Estate Taxes

The size of the estate affects the state and federal inheritance taxes that may be due. How much and at what rate is a shifting target of late. As thresholds change, so too should efficient tax planning for your legacy. Beneficiaries receive life insurance death benefits tax-free. With the right guidance, these proceeds can be used to offset inheritance taxes and avoid selling estate assets to cover tax obligations.

Business Ownership

If you own a business or are a co-owner, your passing may present substantial challenges for continuing the business, affecting family or business partners. Many start-ups and partnerships establish plans to address these eventualities, often in a buy-sell agreement. This contract outlines how a departing partner or founder’s business shares will be reassigned to other stakeholders or sold. Life insurance is often the financial product employed to fund such an agreement.

Estate Equalization

In the case of multiple heirs, assets often do not divide up easily or equally. For example, a vacation home worth $600,000 may be local and desirable to one heir, while the other two heirs live far away and have no interest in the property. To compensate those heirs who do not want to co-own the property, the heir wishing to retain the property must cash them out $200,000 each. This situation can quickly create a family rift.

As part of an estate plan, life insurance can fill the gap and equalize inheritance among heirs. In this case, one heir would get the property outright, while the other two would receive death benefit proceeds to compensate for their portion of the property value.

Probate Avoidance

Probate court oversees the settlement and distribution of a decedent’s assets. It can be a lengthy, involved, and expensive process even when a general estate plan and will are in place. Life insurance proceeds bypass probate when going to the named beneficiary.

Unlike a public probate process, the payment remains private and tax-free to the beneficiary. Be aware that life insurance death benefits may still be subject to estate tax if the insured had “incidents of ownership” when they died.

Special Purposes: Child Support, Divorce, and More

A life insurance policy earmarked for special purposes can address divorce obligations like child or spousal support. Death benefit proceeds may go to the continuation of support of a loved one like a minor child with special needs or an elderly family member.

Mainly these types of direct purpose policies are part of an established trust. Assets like life insurance policies are held in the trust on behalf of a beneficiary and under the supervision of a trustee to meet obligations providing long-range monetary support in a substantially funded trust.

Your estate planning attorney can identify which trust type will suit your needs. Personal circumstances and goals help define which trust will work best regarding probate, taxes, and more.

Life insurance death benefits can solve many liquidity problems that arise in the dissolution of an estate. These proceeds are typically not subject to income taxes and have uses as wide and varied as the circumstances and goals of the individual creating their estate plan. We can advise how to use life insurance properly to serve your beneficiaries. Please contact our Ruston, LA office by calling us at (318) 255-1760.