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How to Prepare for the Future with an Estate Plan

By: David Goldner

While no one gets excited about estate planning, for your family's sake, it's important to make sure your plan is up to date. This article covers some of the important information I like to share with clients during the estate planning process.

Who Should Be Involved In Reviewing Your Estate Plan?

You can get the process started with any of your trusted advisors. Your CPA can help, although you will need to involve an attorney along the way to prepare documents. If you don’t know an estate planning attorney, your CPA should be able to refer you to one.

What Role Does Your Business Play in Your Estate Plan?

If you have a business, it will be revalued in your estate. With an estate plan, you have the opportunity to say what you want to happen to your business when you pass away. Do you want to sell it? Give it to one child but not another? Your estate plan can clarify that.

Does Someone Other than You Know How to Access Your Digital Accounts and Files?

It is more important than ever to make sure someone other than you knows how to access your digital accounts and files.

Often, one member of the household manages financial files, documents and digital accounts. If something happens to you, and you’re the one who holds all the passwords, your loved ones will have a terrible time in an already unfortunate situation trying to access things like bank accounts, investment accounts and retirement plans.

I advise my clients to use a digital vault like LastPass to keep all passwords in one safe place. Make sure your loved ones know how to access your digital vault.

Our Technology Solutions Group offers tips for creating secure passwords. Whatever you do, don’t create a spreadsheet of passwords and call it passwords.xls!

What Are Charity Trusts and Why Should You Think About Them Now?

Charitable trusts are trusts that are set up for general income tax or estate tax planning purposes.

Charitable remainder trusts are often set up when someone sells low basis stock with a large gain. They help you avoid paying gains tax right away.

For example, if you bought Facebook or Amazon stock early on, its value has grown exponentially. Instead of selling off the stock in one large block and paying the gains tax all at once, you can set up a charitable remainder trust that defers the capital gains tax as you leave part of the stock to charity and get a tax deduction. More importantly, you can keep the majority of the value for yourself as a long-term income stream at low capital gains tax rates, with the remaining value going to charity.

There are other ways to incorporate charitable giving into your financial planning. For example, gifts to a foundation can be an effective income tax planning strategy. Setting up a foundation can help you save some income taxes.

What Is a GRAT and Why Should You Consider It?

A grantor retained annuity trust, or GRAT, is a vehicle used for estate planning, specifically for someone who is already employing a variety of estate planning strategies. A GRAT provides an individual the opportunity to transfer the growth on appreciating assets to their children or other named beneficiaries with very little or no gift tax consequences.

Here’s how a GRAT works: if you have an asset that is expected to go up in value, you can use a GRAT to keep the value of that asset the same today, as well as the minimal IRS interest rates we are seeing today, then give it away. If the asset grows in value, the growth will escape estate taxation.

If you have a substantial estate tax ahead of you, now is an excellent time to move assets with a depressed value, like stocks, down to the next generation.

How Can You Use a Lifetime Exemption for a Reduced Valuation?

Everyone today has about an $11 million estate tax exemption. Depending on the assets in your estate, you may have $10 million of stock you can give away. Gifting the stock is a good idea because the future appreciation will be out of your estate, but the additional opportunity in front of you is to get a reduced valuation of the asset.

By adding other vehicles like a family limited partnership (FLP) or family limited liability company (FLLC), you can restrict assets and keep control of them. Because the person getting the gift does not control it, you get to discount the value of the gift.

You might be able to give away a portfolio of stocks and bonds inside a family limited liability and get a 20-30% on the value you’re giving away to your family.

What Should You Do Next With Estate Planning

  1. Get your estate plan in order. Update a plan that already exists. Make sure you have documents like power of attorney, medical directives and wills in place.
  2. Tell your loved ones how to access your digital accounts and files should something happen to you.

Need Help?

Contact us here or call 800.899.4623.

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Published August 20, 2021

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