If leaving a legacy is a concern for you, you should incorporate wealth transfer planning into your overall financial plan. Here are some things to consider:
Retirement Assets May Not Be Positioned For Wealth Transfer
The assets that help you have you long-lasting retirement may not be the best instruments for your estate. Annuities, IRAs, Certificates of Deposit, and more, may be subject to income and estate taxes that can significantly erode the wealth that you’ve worked hard to create.
Wealth Transfer and Estate Planning Is For Everyone—Not Just The Wealthy
With estate taxes set on the excess of $11.4 million per individual in 2019, it may seem that estate planning is only a concern for the wealthiest of the wealthy. While most estates won’t be subject to this current estate tax rate, individuals still need to think about the impact of taxation on their assets issued to beneficiaries. This is because received assets will generally be subject to ordinary income tax, which can whittle significant amounts away from the accumulated value of an estate. Additionally, some states may levy estate or inheritance taxes.
Illiquid Assets Can Tie Up An Estate
When an individual dies, their estate generally will have only nine months to settle federal estate taxes. If an estate is comprised of a mix of cash assets, physicals assets, and other types of assets, this can be difficult to satisfy and may result in lost value. For example, it may be tough to find someone to purchase a highly valuable property in the short span of nine months, which may result in settling for lower sale to gain liquid cash for an estate tax settlement.
Beyond the point discussed above, physical assets can be hard to transfer to multiple beneficiaries. How would you—for example—split the value of a tract of land, a business, or real estate amongst your heirs?
Blended Families Can Present Challenges
The most common type of will among married couples provides for all assets to pass to the surviving spouse, generally with the understanding that at the surviving spouse’s death, the remaining assets will pass to the couple’s children. In blended families, however, problems can arise when the surviving spouse then leaves the remaining estate to his or her biological children, potentially disinheriting the children of the first spouse to die. Working with a qualified estate planning team, there are steps that can be taken now to help protect the interests of both the surviving spouse and children from both prior and current marriages. In the case of a blended family, it’s particularly important that all components of the estate plan be carefully reviewed in order to eliminate any conflicts between the components.
Both You and A Charity Can Benefit From Smart Estate Planning
Charitable giving is not only a way to fulfill your philanthropic desires. It can be used as a planning tool and provide you with benefits such as tax deductions, avoidance of capital gains on highly appreciated assets, and minimizing (or eliminating) estate taxes upon your death. There are even certain charitable giving strategies that allow for an accessible income stream during life.
Life Insurance May Be Useful In Wealth Transfer Planning
Life insurance is a popular estate planning tool for a number of reasons.
- It can provide liquid cash to settle estate tax issues
- If the death benefit exceeds the total premiums paid, this gain generally is received free of income tax.
- By giving up ownership of the policy, the proceeds may be estate tax free. (Irrevocable Life Insurance Trust, ILIT)
Do you have questions about wealth transfer, estate planning, or other financial planning areas? Email rob@tremontsfg.com or call 281.245.3326 now to explore your options.