Learn How to Control Your Estate From Beyond the Grave
Times have changed. When I entered the financial industry over 20 years ago “Estate Planning” primarily focused on two specific issues:
- Having to endure the “Probate” process when settling an estate.
- Paying tax on the portion of an estate not covered under the “Federal Estate Tax Exemption.”
Those concerns have changed because of the following events:
- People (and advisors) realized that this feared “Probate” was not as traumatic as many thought.
- The “Federal Exemption” that determines how much of an estate can be left to heirs without incurring estate taxes increased from $600,000 in the late 1990s to $5.49 million last year and doubled under the new tax law in 2018 to $11.2 million per person. Now, a couple can leave an estate valued up to $22.4 million without paying a dime in taxes.
Meanwhile, something else was happening in the culture:
- Divorce and remarriage fostered the increasing prevalence of multi-generational blended families.
- Parents began to worry about their spendthrift children.
Therefore, the focus of estate planning shifted from the need to avoid fees and taxes to keeping control beyond the grave.
Consider the following scenarios:
Don and Ruth had a legacy plan that distributed their estate to their daughter Wendy. After receiving her inheritance, Wendy died in an auto accident leaving behind her husband, Randy, and their children Ryan and Raleigh. Two years later, Randy married Kelly, who had two children of her own from a previous marriage. Five years into the marriage, Randy died of a heart attack and his estate passed to his new wife Kelly, who updated her financial records and established her two children as the sole beneficiaries in the event of death. What happened to Ryan and Raleigh? They could not inherit a dime of their grandparent’s money.
Robert inherited his mother’s $175,000 IRA after she died last year. After paying off credit cards and students loans, remodeling his house, and taking his friends on a cruise, he was left with $5,000. That’s when the IRS informed him that he owed $75,250 in federal and state income tax on the IRA. This could have been avoided.
Ron and Lori left money to provide care for Melissa, their child with special needs. Unfortunately, they left their inheritance to her directly instead of using a special needs trust. Consequently, Melissa could no longer receive government benefits.
Blake’s will and trust was devised to leave everything to his wife. However, his largest asset, his 401k, went to his ex-spouse because he failed to set up the beneficiary forms correctly when he remarried.
Your daughter Becky finalizes her divorce, but a month later you learn that her agreement includes your ex-son-in-law’s ability to lay claim against a portion of her inheritance from you.
How to Protect & Control Your Financial Legacy
This list of frightening scenarios is nearly endless. How do you avoid situations in which your hard-earned money fails to reach its intended targets because of poor planning?
- A beneficiary form will override both a will and a trust.
- In the event of a death, remarriage or divorce, check ALL financial documents, including beneficiary forms.
- Rather than a lump sum, leave an income stream to your children.
- A “Restricted Beneficiary Form” can help you keep control and carry out specific wishes after you’re gone without needing a trust.
- Remember that doing nothing is still doing something. Leaving an estate with no will or trust will give control to others who will determine what happens to your hard-earned money.
- Learn ways to protect money for future generations.
- Consider the use of Payable On Death (POD) and Transferrable on Death (TOD) provisions with accounts that do not offer a beneficiary form.
- Understand tax consequence of all your accounts. For example, instead of leaving a taxable IRA to children and tax-free life insurance policy to a charity, do it the other way around.
- Ensure that your IRA’s have a “Stretch” provision allowing beneficiaries the option to distribute funds over their lifetime and minimize tax implications.
The ultimate goal of Estate Planning is to ensure that your money goes where you want, how you want, and when you want in the most tax-efficient means possible.
Jason W. Veinot is a financial author, former radio show host and portfolio manager with Enhance Wealth, a Member of Advisory Services Network, LLC which offers financial services to individuals and businesses throughout Kentucky. Jason is also a licensed insurance agent offering insurance products and services through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.
Should you have any questions or desire a review of your situation, please contact Jason directly at 231.6622 or info@enhancewealth.com.