As a wise money manager, chances are good that you already have at least a basic estate plan in place, including a will and financial powers of attorney. However, there are numerous other tools you can use to help make sure your wishes are carried out, your assets are safeguarded, your family is protected and estate taxes are minimized. Here, we review several such advanced strategies worth considering.
Trusts: Asset protection
When someone is ready to go beyond the basics with their estate plan, trusts are one of the first tools that come into play. They can help protect assets during your life and after your death, help your heirs to avoid probate and potentially mitigate estate taxes. Since a third-party trustee can manage trust assets and disbursements, this can be a smart a way to pass assets on to minors (who cannot inherit directly), special-needs persons and beneficiaries who may not be able to responsibly manage large amounts of money.
Trusts can be set up in different ways to meet different goals, and you can typically add your own specific restrictions and requirements. This is a legal document that should be drafted by an attorney. You may also want to consult your financial and tax advisors to understand how your trust choices impact your complete financial picture.
Gifting: Estate reduction
If estate taxes are one of your top concerns, then reducing the size of your estate may be helpful. For instance, gifting money while you’re still alive could be an effective tactic. For 2019, you and your spouse may each be able to give up to $15,000 per year, per recipient, potentially reducing your estate value without paying any gift tax. The gift is also typically tax-free for the recipients. Above and beyond this amount, you may be able to give up to $11.4 million in your lifetime without paying gift taxes. In addition, you can generally pay another person’s educational or healthcare bills, with no dollar limit, as long as you pay directly to the biller.
You may also be able to reduce your estate value through charitable donations — for example, through a donor-advised fund. This option generally allows you to take an immediate tax deduction (consult your tax advisor), with disbursements to charities made over time. As the donor, you can make recommendations regarding the recipients of the funds, however you would not have final decision-making authority.
Family Owned Entities: Asset distribution
A family owned entity allows multiple family members to jointly own assets. Typically, older family members contribute the asset — often real estate — and retain management control. Younger family members may have economic rights, but limited management and transfer rights. A variety of entity types can be employed each having various benefits, which may include certain tax benefits. Your legal and tax advisors can help you choose the best entity for your circumstances.
Guardian guidance: Peace of mind
Estate planning should go beyond financial concerns to address other ways of safeguarding your family once you’re gone. For instance, if you have children, you’ve probably named a guardian for them. Leaving detailed information for that person can be an asset and comfort to both the guardian and your children during a time of grief.
There are numerous other ways to bolster your estate plan, and your Private Banker can provide insights and guidance on your options. Together, you can create a plan that offers the maximum advantage to both you and your beneficiaries.
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