Estate Planning: Assets & Finances

When planning an estate, the process begins with digging deep into fact finding of finances.  Reviewing assets and understanding the best ways to transfer assets is key in ensuring that family members will not have to deal with the “red tape” of probate court, especially if one passes without a will in place.

Asset Review

A full review of all assets is vital in determining the net worth of an estate.  Such accounts that should be reviewed include:

  • Bank Accounts
  • Investments
  • Business Interests
  • Life Insurance
  • Pension Benefits

Transfer Methods

The way an estate’s assets are passed on to the next generation can have an extreme impact on whether there is a smooth transition after a person dies.  If there is not a plan in place, the state will step in and determine how assets are divided.  This may or may not line up with the wishes of the estate owner.  Some transfer methods include:

  • Jointly-held property
  • Community property
  • Beneficiary designations
  • Wills and Trusts
  • Buy-Sell Agreements

Both, transfer methods and an asset review, work together to create an estate plan.

Goals and Objectives

Every person has different wishes for their estate.  There is no “one size fits all” estate plan.  Several areas should be discussed and thought through when planning the way an estate will be divided.  Some goals and objectives to include in estate planning include:

  • Income needs at death
  • Cash needs at death
  • Retirement income needs
  • Capital accumulation needs
  • Asset protection needs
  • Educational funding
  • Charitable and gift giving

An estate plan should include planning alternatives to achieve goals and objectives and to minimize costs and taxes.  All of these aspects combined together create a solid estate plan.

Costs to Settle an Estate

All estates will incur some type of costs to settle.  The size and complexity of an estate will determine how much the estate will shrink.  An estate costs can arise from:

  • Final Expenses – Medical, funeral, burial expenses, and debts owed by the estate owner can shrink the net worth of an estate.
  • Estate Administration Expenses – Estate administrator expenses may conclude attorney fees, executor fees, bonding costs, appraisal fees, court costs, sales or brokerage fees, and any other costs that maintain or improve the estates assets for sale.
  • Taxes – Even if an estate is not subject to federal estate taxes, it may still be subject to state death taxes.

Any or all of these costs can take from 10% up to 60% of an estate’s value.  The solution to this dilemma is to create a source of funds from life insurance to pay any estate settlement costs which will preserve the value of the estate.

Facts about Estate Planning

There are ten facts that can give a good foundation of knowledge upon which a person can build an estate plan.  

  • The unlimited marital deduction defers the payment of federal estate taxes.
  • A married couple can give any individual up to $28,000 in gifts tax-free in 2017.
  • Federal estates taxes must be paid in cash.
  • Federal estate tax rates increase with the size of the estate.
  • Some estates have to pay state inheritance taxes.
  • If a will is not in place when a person dies, state intestacy laws will determine the division of an estate.
  • The federal estate tax is payable only if a taxable part of an estate exceeds $5.5 million in 2017.
  • The marital deduction can only be applied to property bequeathed to a spouse.
  • Depending on the size of an estate, tax rates can rise as high as 40%.
  • There are various estate planning techniques and tools that can reduce the estate settlement costs.

Estate Planning Team

Because each estates goals and situation is different, the professionals that make up the estate planning team can include some or all of the following:

  • Attorney – An estate planning attorney will assist in drafting legal documents and identifying estate planning techniques that can save an estate thousands of dollars.
  • Accountant – An accountant can provide specialized knowledge of a person business or personal finances, determine a valuation of estate assets, and to prepare income and estate tax returns after death.
  • Insurance Agent – Selecting the best policy and recommending policy ownership arrangements that result in substantial estate tax savings can be solved many times with life insurance.
  • Securities Broker – An estate accumulation, preservation, or distribution goals can be assisted by a securities broker.
  • Trust Officer – A bank or trust company officer is often designated as executor of a will or trustee of a trust due to the complexity of an estate.
  • Charitable Planner – For those who plan on leaving assets to a charitable organization, either during their lifetime or at death, an expert in structuring a charitable planning arrangement can benefit the estate.
  • Estate Owner – The estate owner must ultimately select and implement the recommendations given by the estate team in order to accomplish the estates planning goals.

Reviewing assets, transferring funds, clear goals and objectives, estate settlement costs, and compiling an expert estate planning team are all areas that a person who wants to maximize the amount of money left to their heirs should include in their estate plan.  With the complexities of the many different state and federal laws, beginning the process with the help of a financial advisor is the best way to ensure that vital steps are not omitted and that loved ones will be left with an estate that will provide for a secure future.

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