3 Quick Suggestions for Planning Your Estate Carmichael Hill

Estate planning is a significant undertaking. It gives us a way to transfer what we’ve accumulated throughout our lives to those we hold dear. Passing down properties and personal items can convey familial bonds and affection and even offer financial assistance to our loved ones. Consider the following for your estate planning when it comes time to ensure that your last and final intentions are honored.

  1. Have an actual plan

Don’t breeze by this one. You need to put pen to paper and formalize what it is that you actually want. Oral bequests may not be honored in your state. But even when they are they are typically hard to enforce and may be ignored when another document, such as a beneficiary designation on a bank account or life insurance policy, contradicts it. You need to take things a step further.

If you don’t have a written plan, then your state has one for you. These are known as the laws of intestacy, and they will govern what happens to your stuff and money when you pass away without any kind of estate planning documents. This may not mesh well with your intentions, especially if you have a large estate or children from different marriages. Be clear, be concise, and put a plan in place. Help your heirs avoid guesswork and family fights but laying out precisely what you want.[1]

  1. Check your beneficiary designations

One important aspect to consider, particularly regarding your retirement savings, is to verify that you have correctly recorded your beneficiary’s pertinent information. A minor error, such as a misspelled name or an incorrect social security number, can cause numerous issues while managing your estate.

You should also check your beneficiary designations every 3-5 years or upon major life changes, such as the birth of a new child or grandchild or a divorce. This is because beneficiary designations supersede what you put in your will. If don’t update your beneficiary designations and keep your ex-spouse as the beneficiary of your IRA, and you then write a will that says you leave everything to your current spouse, the beneficiary designation will win when you pass away. Your ex-spouse will be thrilled, obviously, but your grieving widow will be less pleased.

Moreover, it may be beneficial to designate what is referred to as a contingent beneficiary for your retirement funds.[1] This is an alternate beneficiary who will inherit the money in your accounts if your primary beneficiary predeceases you. For example, you may name your spouse as your primary beneficiary and your kids as your contingent beneficiaries. The kids will only inherit if your spouse passes away first.[1]

  1. Use gifts to your advantage

Tax considerations often take center stage in estate planning. Strategizing around taxes forms a crucial aspect of personal finance because tax-related errors can cause a more significant dent in your hard-earned income than anticipated. However, one strategy to minimize estate taxes involves distributing some of your wealth before you pass away.

As of 2023, the annual limit for tax-exempt gifts stands at $17,000.[2] This stipulation allows you to present anyone with up to $17,000 within a year without dipping into your Federal lifetime gift tax amount, which is $12.92 million in 2023.[2] However, if you don’t give gifts during your lifetime, your estate will be liable for applicable wealth transfer taxes, leaving less behind for your heirs.

Very few people pay Federal estate taxes given the high $12.92M individual exemption, which in effect means that a married couple has an exemption just shy of $26M. But estate taxes at the state level are different. Maryland, for example, has capped their exemption limit at $5M. Washington, DC is $4.594M. If you believe that your estate may grow to be more than these thresholds, then gifting during your lifetime to reduce the size of your estate may be a viable strategy.

Conclusion

Navigating the complexities of estate planning can be challenging, and even minor errors can create substantial problems for your family. The same is true for retirement planning. If you’re in need of assistance in planning your retirement, then get in touch with us today for a free assessment of your current position.

 

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