Key Questions to Discuss with Your Estate Planner

By Trilogy Financial
March 8, 2023
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Estate planning is an essential step to help protect the wealth that you've spent your life building. Meeting with an estate planner will help to create a comprehensive plan that will allow your assets to effectively pass to your assigned beneficiaries. Creating this initial plan can feel overwhelming, and we are here to help you prepare.

Here are five important questions you can expect to discuss with your estate advisor as you start to plan for your future.

How Would You Like Your Wealth to Pass to Your Heirs or Elsewhere?

The basis of your estate plan is where you want to direct your wealth and how you'd like that to happen. No matter how large or small your estate is, you'll need to decide how it should be distributed among children, grandchildren, other family members or favorite charity organizations. For example, this could mean leaving different parties a percentage of your total assets, or leaving one child your business and another child your vacation home.

It’s important to also think about whether you want your beneficiaries to receive their inheritance all at once or not. If you have a disabled child requiring lifelong care on your list, or someone who needs a little extra help managing their money, you may want a trust or annuity structure in place to pay out the inheritance in increments.

What Can Be Done to Prevent Costs and Conflicts for Your Heirs?

Costs for your beneficiaries are most likely to come up if your estate needs to go through probate, which is the process by which a court distributes your assets. In addition to financial costs, there are other reasons to avoid probate. Probate can be a long and exhausting process – meaning, your heirs will not be able to access your estate right away. If you have dependents who will rely on the money in your estate, this can be an especially serious concern. In addition, probate adds your estate information to the public record, which you may want to avoid. There are several strategies your financial advisor might recommend to avoid probate. These include placing assets in a trust and moving funds into joint accounts with your beneficiaries.

Conflict among heirs is another common concern, especially in families where conflict already exists. While the legal documents included in your estate should help minimize disagreements and make it more difficult for someone to contest your wishes, communication during your lifetime is important as well. Disagreements often surround specific items like jewelry or sentimental pieces rather than your financial assets. Labeling these items, writing a letter of instruction and starting to pass on these things during your lifetime can all help make your intentions clear.

How Can You Reduce Your Tax Burden?

After a lifetime of working to earn your money, you likely want to direct your wealth to your loved ones rather than the government. In 2023, only estates valued at $12.92 million (or $25.84 million for some married couples) or more may be subject to the federal estate tax. If, upon your death, the total value of your estate is less than the applicable exclusion amount, no federal estate taxes will be due.

Depending on the state you live in, your heirs or your estate might also be subject to state estate or inheritance taxes. If taxes are a concern for your estate, there are several ways to reduce your tax burden.

One simple option is to start passing money along during your lifetime. Based on the 2022 gift tax exemption limit, individuals can give up to $16,000 per recipient per year. This lets you give money directly to your children or grandchildren while reducing the value of your estate, which will reduce your tax bill. Other options include a marital trust, which allows one spouse to place assets in trust for the other spouse, and an irrevocable life insurance trust, which can pay for life insurance premiums with tax-deductible funds and then avoid estate taxes later on.

Are You Already Working with Financial Professionals?

If you're already working with an estate attorney, a financial planner or a tax professional, it's important for your estate planner to understand the strategies your existing financial team has recommended. You'll want to make sure that all of these members of your team are working together so you aren't paying for duplicated efforts or conflicting suggestions.

If you aren't already working with a financial team, your estate planner may recommend that you do so depending on the details of your estate plan. If you have complex tax concerns, you might need to talk to a tax expert. Depending on the type of trust that you wish to establish, you may need an estate attorney to set it up.

How Will Changes in Your Life Change Your Estate Plan?

Your estate plan should have the flexibility to adapt to changes in your lifestyle, family structure or life expectancy. Your initial plan will be based on your current circumstances, but you should consider potential future concerns and possible solutions.

Divorce and Remarriage

Divorce and remarriage are common life changes that can affect your estate plan. If you remarry, you may not want your new spouse to manage the inheritance of your children from the first marriage. This can create the need for a new trust to be established. In addition, if you have more children in later marriages, you will again need to update your estate plan.

Life Expectancy and Medical Issues

There are other lifestyle considerations that might change as well. For example, if based on your family history you expect to live into your 90s, you might not want to start giving away assets to avoid estate taxes. And if medical issues arise and your life expectancy changes, you will likely need to adjust your plan.

While you won't need to make any decisions based on hypotheticals, it's a good idea to discuss the possibilities.

How to Get Started?

Your estate plan is a key component of your Life Plan. To create an estate plan that addresses the above questions and any other concerns you may have, you'll need to start by finding the right estate advisor. Talk to the Trilogy Financial team to take control of your finances today while maximizing your future opportunities.

Download your free Estate Strategies eBook to learn how to protect your estate.

 

family happy after meeting with estate planner
family happy with estate planning and secure future

 

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By
Jeff Motske, CFP®
June 7, 2018

Your retirement savings, which is the means to your financial freedom, should be set up in the same way. There is no way to accurately predict what life will be like during the course of your retirement. Based on the climbing US debt, it is safe to assume that tax rates may increase. Unanticipated expenses may arise. Life is never predictable. Therefore, you need your money to be ready to work for you. In my experience, one of the best ways to ensure this is by utilizing three types, or buckets, of savings.

The first bucket is comprised of your traditional retirement investments like a 401(k), 403(b), or 457 plan. These plans are very popular and easily accessible as most employers offer them. Contributions grow tax-deferred and can be automatically deducted from one’s paycheck. However, what was a tax benefit while saving becomes a tax-trap once you retire as those funds will be taxed once they are pulled out. Another thing to consider is what the tax rate will be like at that time. I always ask my clients, “Do you think taxes will have gone up or down by the time you retire?” No one ever says down. Therefore, if all your retirement funds are in this first bucket, you are suddenly at the mercy of the government on how you utilize your retirement money. This is not financial freedom.

However, more buckets mean more options. Let’s consider that you also have retirement savings invested in a second bucket containing tax-free funds. This is typically comprised of Roth IRA’s or Roth 401(k)’s. Although Roth 401(k)’s are not highly promoted or even included in a lot of employer-offered plans, they are a very powerful saving tool. Your contributions grow tax-deferred and are distributed tax-free. With the addition of this second bucket or savings, you suddenly have a little more flexibility on how you access your money.

The final bucket is one that isn’t on most people’s radar. This bucket should be comprised of the investments in your portfolio of stock equities. The gains on these investments are taxed as capital gains. Historically, capital gains tax rates are significantly lower than typical income tax rates. If these investments are sold properly, they can provide another option when trying to manage how your money works for you.

As you can see, multiple buckets of retirement savings seek to provide you with freedom and tax control. If taxes are high, utilize your second bucket. If taxes are lower, feel free to dip into your first bucket. You can work with your financial advisor on what investments belong in which bucket, as well as to dial more or less into these buckets depending on tax rates and what your needs are. This flexibility is key to securing your financial freedom in retirement.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, including the risk of loss.

By
Mike Loo, MBA
September 12, 2018

Before the year’s end, in the midst of the holiday events, travel, and overall busyness, the last thing you want to think about is tackling your finances. But considering how finance-related resolutions are the third most popular New Year’s resolution, why don’t you give yourself a head start on next year’s financial goals by finishing this year strong? Here are ten critical financial actions you’ll be glad you took when the ball drops on New Year’s Eve!

  1. Amp Up Your Retirement Savings

If possible, max out your contributions to your 401(k) by the end of the year to make the most of your retirement savings. For 2018, you can contribute as much as $18,500 (or $24,500 if you are age 50 or older). You might also consider contributing to a Roth IRA. For 2018, you can contribute as much as $5,500 (or $6,500 if you are age 50 or older). Keep in mind that if your income is over $199,000 and you’re married filing jointly, you won’t be eligible to contribute to a Roth IRA.

  1. Use Your Medical And Dental Benefits

Did you have good intentions of taking care of some dental work, blood tests, or other medical procedures? Now’s the time to take advantage of all your healthcare needs before your deductible resets. Dental plans in particular often have a maximum coverage amount. If you haven’t used up the full amount and anticipate any treatments, make an appointment before December 31st.

  1. Verify Expiring Sick And Vacation Time

Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If your sick or vacation time does expire, fit in a last-minute vacation, a staycation, or trips to the doctor to use up these benefits.

  1. Use Your Flexible Spending Account

Like your health insurance benefits, you’ll want to use up your FSA (Flexible Spending Account) dollars by the end of the year. Your benefits won’t carry over and you’ll lose any unspent money in your account. Check the restrictions for your account to see what the money can and cannot be used for.

  1. Double-Check RMDs

If you’re retired, review your retirement accounts’ required minimum distributions (RMDs). An RMD is the annual payout savers must take from their retirement accounts, including 401(k)s, SIMPLE IRAs, SEP IRAs, and traditional IRAs, when they turn 70½. If you don’t, you may face the steep penalty of 50% of the distribution you should have taken. To calculate your RMD, use one of the IRS worksheets.

  1. Stay On Top Of Charitable Contributions

If you made a charitable contribution in 2018, you might be able to lower your total tax bill when you file early next year. It can be especially advantageous if you donated appreciated securities to avoid paying taxes on the gains. Along with your other tax documents, find and organize any receipts you have from your donations to charities, whether it was a cash, securities contribution, or another type of gift.

  1. Review Your Insurance Coverages

A lot can happen in a year. As you experience life changes, from the birth of a child to marriage to a new career, it’s important to regularly review your insurance coverages and your designated beneficiaries. Now is the ideal time to review your current insurance policies and make sure they are up to date. You might also want to evaluate your need for other types of insurance you may not currently have, such as long-term care insurance.

  1. Prepare For A Market Correction

We are currently in the longest bull market in history2 and the stock market just keeps hitting record highs3. But we know that what comes up must eventually come down. Prepare yourself and your money by sticking to a long-term strategy, rebalancing your portfolio, and keeping your emotions in check. As long as you are following sound investment principles, only investing long-term money, and keeping your assets within your risk tolerance, you should have no reason to panic when we experience a market downturn.

  1. Talk To Your Kids About Money

The holidays are usually a time for families to get together and reconnect. Use this time intentionally by talking with your kids about money. No matter how old they are, you can give them sound wisdom that will set them up for success. Make sure they understand the importance of saving for retirement and having the proper amount of insurance coverage. Another way to help your kids financially is to create an estate plan to make sure you leave a legacy and avoid passing down a significant tax burden or legal headaches to your kids. If you’ve already taken the time and energy to create an estate plan, you’ll want to check in periodically to ensure all the documents are up to date and no major details have changed.

  1. Give Without Gift Tax Consequences

It’s never too early to start planning for the legacy you want to leave your loved ones without sharing a good portion of it with Uncle Sam. You may want to consider gifting. Each year you can gift up to $14,000 to as many people as you wish without those gifts counting against your lifetime exemption of $5 million. If you’ve yet to gift this year or haven’t reached $14,000, consider gifting to your children or grandchildren by December 31st.

  1. http://www.statisticbrain.com/new-years-resolution-statistics/
  2. https://www.cnbc.com/2018/08/22/longest-bull-market-since-world-war-ii-likely-to-go-on-because-us-is-best-game-in-town.html
  3. https://www.usatoday.com/story/money/2018/08/21/stocks-hit-record-highs/922315002/

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