October 18, 2018
Although we typically associate the term “estate” with the ultra-wealthy, estate planning is not just for the rich. Everyone, regardless of family dynamics or financial status, can benefit from having an estate plan—a collection of documents that specify how you want your assets distributed. Nevertheless, most people have neglected to put such plans in place. According to a recent survey from Caring.com, only 42% of American adults currently have estate planning documents, such as a will or living trust.
While end-of-life planning may seem morbid, an estate plan can protect you and your assets not just after you die, but during your life as well. If you haven’t yet incorporated an estate plan into your overall financial plan, consider the following reasons why you should talk to an estate planning attorney or wealth advisor about your wishes sooner rather than later.
While most people tend to think of an estate plan as something you need when you die, many don’t realize that it can also protect you and your assets in the event you become incapacitated or can’t make decisions for yourself. After estimating your cash flow needs leading up to retirement and beyond, think about what insurance you may need if you’re no longer able to provide for yourself. Additionally, consider designating a healthcare proxy or power of attorney who can make medical and financial decisions on your behalf if necessary. Discussing your intentions with those you trust can help ensure that your wishes and needs are met if you’re eventually unable to speak for yourself.
If you don’t have a documented estate plan such as a will or living trust, the state where you reside typically decides how your assets are distributed after you die. Proper documentation can save your family members time and frustration and will help ensure that your assets are dispersed in the manner you intend. At a minimum, you should routinely review the designated beneficiaries on your investment accounts and life insurance policies, if applicable, to make sure that they are current. Additionally, a will or trust clearly defines how your assets should be transferred upon your death.
If you or your family has accumulated a substantial amount of wealth and you plan to transfer it to other family members or loved ones upon your death, the estate planning process can help you develop an approach to do so in the most tax-efficient way possible. There are three types of taxes to consider when transferring your money—the estate tax, gift tax and generation-skipping transfer tax. Since the IRS places limits around how much money you can transfer and to whom without being taxed, a good estate plan outlines a wealth transfer strategy that attempts to minimize the taxes owed by you or your estate.
Legacy planning is often included in the estate planning process to shape the way you are remembered after you die. For many people, this includes establishing philanthropic intentions and developing a plan to ensure that such goals are implemented into the future. You may decide to create a family foundation, set up a charitable trust, or participate in a donor-advised fund to support the causes important to you. The sooner you start to plan, the more you can make your intentions known to your family members and incorporate them into the process.
Your assets can be challenged in many ways during your lifetime. As people grow wealthier, they often become more susceptible to frivolous lawsuits that attempt to capitalize on their hard-earned wealth. Estate planning helps preserve your family’s wealth by removing your name from your assets and putting them into legally-protected vehicles, such as trusts or limited liability entities. Insurance is also a critical component—in addition to the basic areas where insurance is required, certain types of insurance can provide funds to increase your estate or protect you against a variety of legal challenges.
While every family has unique wealth transfer goals, instilling and preserving the family’s values throughout generations is often a common objective. Typically, families that are successful in developing the rising generation to be effective stewards of family wealth provide age-appropriate transparency, create a welcoming learning environment and encourage opportunities for involvement. Whether you choose to talk to your children on your own or work with an advisor, open and honest discussions about the family’s wealth can help remove some of the emotion and conflict that younger generations sometimes associate with money.
Estate planning can be a complex and emotional process. Nevertheless, the earlier you get started, the more prepared you and your family will be to face a variety of challenging situations. Because of the legal complexities involved with estate planning, it’s typically best to seek advice from your wealth advisor and/or estate planning attorney before making any major decisions. They can help guide you through the process and develop strategies to protect your wealth well into the future.
Cathy Schnaubelt is a senior wealth strategist for CIBC Private Wealth Management's Houston office, with more than 35 years of industry experience. In this role, Cathy is responsible for the development of integrated wealth management solutions and provides comprehensive estate and financial planning services to high net worth clients.
This article originally appeared on Forbes.com on Sept. 13, 2018.
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