Estate planning is essential for everyone, no matter how simple or small the estate. But once your estate edges close to $1 million, the complexities increase.<\/p>\n
Unless your estate is valued at more than $5.49 million\u2014or $10.98 million for a married couple\u2014you\u2019re exempt from federal estate taxes for the 2017 tax year. But some states impose estate and\/or inheritance taxes at a lower threshold, with most around $1 million to $2 million.<\/p>\n
A comprehensive estate plan can help to maximize what your heirs receive and ensure that your wishes are followed.<\/p>\n
Most people start their estate plan with a will, said Bill Ringham, senior manager of Wealth Strategies at RBC Wealth Management. That\u2019s because wills are relatively easy and inexpensive to create. But for more complicated estates\u2014as those that exceed $1 million often are\u2014a will may not be the only solution to consider.<\/p>\n
Wills are a matter of public record, which means anyone can find out the value of your estate and who your beneficiaries are, Ringham said. \u201cA very public figure such as a politician, entertainer or professional athlete might not want people to know what they\u2019re leaving in their estate,\u201d he said. \u201cOr, someone might not want people to know exactly how much is being directed to their children and how much is being directed to charity.\u201c<\/p>\n
For a more private resolution after death, many people with larger estates choose to put their assets in revocable trusts, also called living trusts. You transfer assets into the trust and those assets are managed by a trustee\u2014often that trustee is you\u2014for your benefit while you\u2019re still alive. As the name implies, the trust can be modified during your lifetime. When you pass away, the trust can specify that assets be distributed to your beneficiaries, or a successor trustee can be named to manage and control the trust for your heirs.<\/p>\n
A revocable trust can include real estate, cash and non-retirement\/non-qualified investments accounts, non-qualified annuities, and tangible personal property such as cars. Retirement accounts such as 401(k)s and deferred IRAs cannot be placed in a revocable trust. There is no minimum amount for establishing a revocable trust, but such trusts become more attractive as an estate becomes more complex and exceeds $1 million, Ringham said.<\/p>\n
\u201cWith a trust, no one can see where you\u2019ve left your money,\u201d Ringham said.<\/p>\n
Trusts often take less time to settle than wills, since wills must also go through probate. Administering an estate with most assets in a revocable trust could take six to nine months, Ringham said. Probating a will, especially in several states, could add three months to the typical timeline for a trust, he said. Cost varies by state.<\/p>\n
\u201cMany of our clients, especially northerners, have homes in more than one state\u2014a primary home in New York, a home in Florida, another home in California,\u201d said Barry Zischang, an RBC Wealth Management consultant. \u201cGoing through probate in three states will be expensive and a lot more work. By having individual homes titled in a trust, you can avoid that.\u201d<\/p>\n
Setting up the initial trust document isn\u2019t necessarily more difficult than setting up a will, but trusts do require some additional work, Ringham said. After you set up the trust, you have to change the title in all applicable assets from your name to the name of the trust. If you don\u2019t, the title of the accounts takes precedence over your will or the trust and it may take longer for funds to be released to your heirs.<\/p>\n
While planning for the distribution of your assets after you pass, you can also start giving them away during your lifetime. Since the rules vary by state and each family situation is different, it\u2019s important to consult an experienced financial advisor regarding tax implications that may apply<\/p>\n
You can give $14,000 per year ($28,000 per year for married couples) to a child, grandchild or anyone else you choose without it counting as a gift under the federal gift-tax exclusion. That\u2019s especially appealing if your estate has grown past the level of being exempt from state or federal taxes.<\/p>\n
\u201c[For] every dollar that you move out of your estate, your heirs save [approximately] 40 cents in taxes,\u201d Ringham said.<\/p>\n
If you give more than that $14,000, it counts as a taxable gift and taxes are imposed not on the recipient, but on you as the giver, Zischang said. You don\u2019t have to pay those taxes, but you do have to file a gift tax return and the gift counts against your individual estate exemption of $5.49 million, he added.<\/p>\n
However, there are two unique instances where you can exceed that $14,000 individual annual limit with no tax consequences.<\/p>\n
\u201cYou may pay somebody\u2019s tuition at an educational institution in unlimited amounts and that is not considered a gift,\u201d Zischang said. But the payment must be for tuition only\u2014not for books or room and board. And you must pay the money directly to the educational institution\u2014not to the child, grandchild, other recipient or their parents.<\/p>\n
The other exception is paying medical bills. \u201cIf your child or grandchild goes to the hospital and gets a bill for $100,000 they can\u2019t pay, you can pay the hospital or other provider directly and that is not considered a gift either,\u201d Zischang said. You could even help pay for health insurance as long as you write the check directly to the insurance provider, he added.<\/p>\n
As your assets grow beyond the $5.49 million federal estate tax threshold, you may want to set up an irrevocable trust. Assets placed into an irrevocable trust are removed from your estate, which can make it an especially attractive option for any assets you expect to increase in value, such as stocks and real estate, Ringham said. The assets you put into an irrevocable trust still count against the $5.49 million gift exclusion, but any growth or appreciation occurs outside your estate.<\/p>\n
There are some downsides: An irrevocable trust can\u2019t be terminated or modified except under special circumstances. Ringham also pointed out that you will have to draft and file separate tax returns for the irrevocable trust.<\/p>\n
A well-thought-out estate plan is crucial to ensuring that your wishes will be followed after you\u2019re gone. With the right tools and the help of an experienced estate planner, even a large estate can be handed down to your heirs in exactly the way you intend.<\/p>\n","protected":false},"excerpt":{"rendered":"
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