Estate planning is probably the last thing going on in one’s mind, but it doesn’t mean it’s not important. Planning long term can be worthwhile when it comes to your family’s personal and financial concerns. Of course, many people presume the process consists of wealth transfer and tax reduction strategies, along with various parties including lawyers and trust companies.
All these elements as well as Family Limited Partnerships (FLP), Qualified Terminable Interest Property (QTIP) trusts, and the Grantor Retained Annuity Trust (GRAT) can be relevant for those that are not even close to reaching 70 or 80 years old yet.
Despite the preconception of the complexity of these terms, the importance of estate planning can be a valuable part of thinking about the future through the many situations life throws at us. Estate taxes can take a huge chunk out of an inheritance as it can be the biggest stand-alone tax expense you may have to encounter and as of 2018, the IRS has required estates with combined gross assets and past taxable gifts of more than $11.18 million to file a federal estate tax return and to pay tax returns. That being said, your estate may only be worth half of what you may have previously expected.
It is never too early to start thinking and taking action steps for appropriate estate planning. You don’t want to spend an entire lifetime working towards a sound financial future for your family and lose more than half of that to taxes that you could’ve planned ahead and mitigated.
Being real with your situation now, financially and personally, is key to starting the process of estate planning. You think you have time, for a lot of things, until one day it hits you, and you realize you are running out of time. We are talking about from little things to big things and in this case, estate planning may seem like a small issue to deal with now, but in the long run it can amount to a huge part of your family’s future.
There are general components to planning your estate, one being that you select a guardian for your children and having an inheritance manager if your kids are still minors. This is so you still have a say in the decision and avoid having an official court mandating an order for a guardian. Also you should decide how to split your assets instead of having the laws in your state decide that. This can cause more stress onto your family as they individually may only get pieces of your estate and unfortunately that may not be enough to survive on. Give your loved ones a sense of financial confidence and plan ahead for the future.
A critical aspect of estate planning is deciding not only who receives shares of your hard-earned estate, but how and when the inheritance will be distributed. Also you can appoint a trustee to manage and execute the terms of your will in planning for how your estate will affect your family. Thinking about these things early can help you reduce estate taxes and administrative costs by setting up trust accounts in the names of your beneficiaries. Having all these elements in order can provide for a safer financial future for your family.
Think of the Future
It can be scary to think about unforeseen incidents happening, and most people would rather think about happier circumstances than tragic accidents, but to face reality now can really help family members in their time of need. Facing trauma is undoubtedly a terrible experience that no one should have to undergo, but having to make important, life-changing decisions in that time period can be even more distressing. Those momentary choices in answering at a crisis can have an enduring impact on the future of many. To negate these drastic effects, spouses should think about how to plan for their family’s future in case one of them were gone in which it would put the remaining spouse and children in a tight financial situation.
Other aspects to think about would be if the family’s assets are protected from potential creditors and who is to manage children’s assets such as college funds if any other special needs and circumstances come up. This can require extensive planning on their ends right now. We know this may all seem overwhelming at first, but setting these instructions ahead of future calamities can save time and money, and put your family in a financial state of ease and have a peace of mind about your children’s futures. Wouldn’t you want the best for your loved ones in spite of any circumstance?
We recommend putting your money in an irrevocable life insurance trust (ILIT) which is useful in that it is set up specifically to own a life insurance policy. This can see that your loved ones get the funds you designated for them because it keeps the life insurance proceeds out of your estate by appointing a trustee for the life insurance policy which counts as an asset. It is good for paying estate taxes within nine months after date of death as the policy is kept out of the estate.
Most families say that they have life insurance, but is it enough coverage? In their insurance portfolios, many have substantial, inexpensive term insurance policies, especially if they have young children. To protect your estate for your family, having an irrevocable life insurance trust can ensure estate taxes don’t prevent your spouse and children from receiving much-needed money in case anything happens and in major financial changes. Also potential creditors from either spouses cannot get to your trust assets which works toward a peace of mind for families through estate planning.
Protect Your Family
The term “irrevocable” may concern some people, but it just means that the trust owns the policy and the insured has no rights of ownership while paying the premiums when they are alive. Creditors and estate taxes cannot interfere with the trust because it is “irrevocable” in defined that it cannot be changed, altered, or recovered so it protects the family’s future finances.
There are many myths to estate planning and that it is only for the wealthy or for retired folks. We cannot rightfully predict how long we will live, and illnesses and accidents happen to people of all ages. That can have a detrimental financial and emotional impact on loved ones. Planning ahead for all circumstances would be smart to make sure your family is taken care of financially. The best time to start estate planning is now and it doesn’t necessarily have to be expensive. Just begin your plan with what you can afford such as a will, life insurance policy, or appointing someone to manage your assets and important decisions in case of an accident.
No one knows what the future will hold, but thinking about it now and taking steps for estate planning can help your loved ones go through hard times if anything happens. We here at M3 want to help our clients protect their wealth regardless of their age and income. Tragedies happen and taking action now to ensure your family is financially provided for in unfortunate circumstances can help in the long run. Making emotional decisions in the face of trauma makes it even worse for everyone so for their sake, estate planning and an irrevocable life insurance trust may address your legacy planning goals..