Five Vital Estate Planning Tips

Under current law, federal estate tax applies to all individual estates worth at least $5.6 million.

But, because assets transfer tax-free to the surviving spouse upon the death of a husband or wife, a married couple can shield up to $11.2 million from the federal tax. Only amounts above this level that are still left in your taxable estate (or that of a surviving spouse) are subject to the tax.

However, planning for an orderly transmission of your financial legacy to your loved ones is still important, even for estates too small to meet the estate tax exemption. Here's what you should do:

1. Get a will

If you die without a will in place, you won't be able to determine who gets what assets, nor determine who will get custody of any minors. Instead, the state will do it for you, via your state's intestate laws, and through a lengthy, expensive and frustrating legal process called probate. This process can delay inheritances for months or even years in complicated cases. 

Furthermore, without a will, probate laws force courts to divide your assets among surviving relatives without regard to how close your relationship is with them or their role in your life. Many stepchildren and beloved life partners have been accidentally disinherited by the failure to create a will. 

2. Establish a trust

When you establish a trust to hold money or property, and you do so in such a way that you cannot undo the action (i.e., an irrevocable trust), you move property out of your taxable estate.

Doing so not only sidesteps estate taxes, but also avoids costly probate. This allows assets to effectively pass to heirs free of an estate tax consequence. Meanwhile, it can also help shield assets from the claims of creditors.

Note: It's not enough to establish a trust. You must also formally transfer ownership of the assets to the trust itself.

3. Purchase life insurance

When a wealthy family member dies, often surviving members of the family must scramble to raise the cash required to pay federal estate taxes as well as state inheritance taxes. Too often, heirs must sell valuable property and treasured family heirlooms at fire-sale prices just to pay the estate tax.

A properly structured life insurance policy will provide large amounts of cash within days of the death of the insured, that can be used to pay estate taxes, taxes on income with respect to the deceased, probate costs, travel costs, legal fees and other costs.

Often, this type of planning requires insurance planning with permanent insurance products, as term insurance may expire before the insured passes away.

4. Implement a strategic gifting program

The allowable annual gift you can give to an individual without triggering tax ramifications will be $15,000 until Jan. 1, 2025. This means that you and your spouse can give a combined $30,000 per year to any family members or loved ones - and another $30,000 to their spouse.

5. Prepare a living will

Your living will, also called an advanced directive, communicates your wishes concerning end-of-life care or care in the event you are incapacitated and cannot make decisions yourself. Combined with a properly drafted power of attorney document, your living will empowers selected trusted individuals with the power to make vital decisions regarding your health care.

For more information, feel free to Contact Neptune Financial to schedule an appointment.

Basic Understanding

This blog is being provided for informational or educational purposes only. It does not take into an investment objectives or financial situation of any individual, family, prospect, client, or prospective clients. The information is not written or intended as investment advice and is not a recommendation about managing or investing your retirement savings.

An individual seeking information regarding their investment or retirement needs should contact a financial professional.

Neptune Financial, and their financial professionals do not render tax and legal advice. Please consult your tax and legal advisors regarding your personal tax or legal concerns.