Financial Planning Fridays #9: Estate Planning

Today in our ninth episode we wanted to talk about Estate Planning.

A good estate plan transfers your assets and investments to your designated beneficiaries in the most effective way possible under the current laws. A good estate plan also transfers assets and investments in the easiest way to your beneficiaries in what otherwise can be a sad and stressful time.

The current lifetime gift exemption for 2022 is $12.06M per person. Anything gifted above that during your lifetime or when you pass away is susceptible to estate tax, which is currently 40%. Alongside Federal taxes, most states also have their own estate or inheritance tax.

The lifetime gift exemption is set to decrease to $6M per person in 2026 but by planning ahead now you can take advantage of the current larger exemption. This can include setting up trusts that maximize the current exemption available now.

One other additional avenue to lower your annual estate tax is to complete annual gifts. This figure adjusts annually with inflation, but in 2022 you can gift up to $16K per person without it going against your lifetime exemption and without the beneficiary owing taxes.

This means that you can methodically lower your overall estate each year to keep yourself under the lifetime exemption amount, provide your beneficiary the money today when it might be even more helpful to them, and potentially avoid the beneficiary paying up to 40% on their inherited dollars in the future.

There are a variety of other strategies and trusts that you can use to maximize these rules. While trust and estate planning can seem intimidating and overwhelming at times, trusts are relatively easy to set up and something that most people may benefit from having in place.

One simple, but key part of an estate plan is to regularly check the beneficiaries on all of your accounts. You can name a beneficiary to almost any type of account, and with the beneficiary named the account will then go directly to this person, or entity, after you pass away and avoid probate, an often time-consuming and expensive process.

It is especially important that your retirement accounts have a beneficiary named, not simply to ensure that your money goes where and to whom you intend but also because your beneficiaries may be able to continue deferring the tax owed on these types of accounts after inheriting them.

As we approach year end, make it a point to check the beneficiaries on all of your accounts. Unfortunately we have seen too many examples where people have outdated beneficiaries leading to situations that could have otherwise been avoided. For example, we’ve seen people well into their careers whose parents are named instead of spouse or children on their 401k or other retirement accounts. Other times to revisit beneficiaries are after a birth or death, a marriage or divorce, or really any major life update.

We have worked with hundreds of clients over the past 20 years on naming beneficiaries to their accounts in the best way possible. We are always happy to talk with your attorney and make sure that your accounts here are set up to match your overall estate plan. Feel free to call us to discuss this in detail any time.

In our next video in this series we’re going to review our secure Presilium client vault and a few ways you can use it to maximize your financial plan.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.