No matter how big your estate is, one day you will want to pass it on to your loved ones. But there is more to estate planning than simply writing a will. Throughout this Estate Planning FAQ Series, we hope that one or more of the following questions and answers will help you understand this deceptively complicated area.
Estate planning can be an uncomfortable topic to talk about, but it's an important one. And while everyone knows that they need an estate plan, few of us do anything about it. In fact, by most estimates, anywhere from 50–60% of Americans don't have a will.
There is some good news on the horizon, however: the COVID-19 Pandemic has changed the nation’s perspective on many things, and estate planning is definitely one of them. Caring.com’s 2021 Wills and Estate Planning Study found that while middle- and older- aged adults are less likely to have a will now than they were just one year ago, younger adults are 63% more likely to have one this year than they were pre-pandemic. Shockingly, 18-34 year-olds are now 16% more likely to have a will than those in the 35-54 age group. The younger generation was also the most likely to cite COVID-19 as the reason they started taking estate planning seriously.
Estate Planning 101
If you have an estate plan already in place, then you have started off on the right path. If you do not have one yet, it is time to get one drawn up so you can have a plan in place.
In a nutshell, estate and trust planning is the process of using professional advisors who are familiar with your goals, concerns, and assets to organize your estate and/or set up your trust. It mainly involves setting up a plan that establishes who will eventually receive your assets. It also makes known how you want your affairs to be handled in the event you are unable to handle them on your own for any reason. It’s a complicated process, and it can definitely feel overwhelming.
There are many components to estate planning, and while there’s a common misconception that it’s just about your finances, the truth is there’s a lot more to it. This is why there are many questions that come to mind when it comes to estate planning. Most people want to know how to provide as much as they can now so their family isn't left wondering or questioning what's next once you're gone: This is why understanding estate planning is key. So, where do you get started? Below are some of the most asked questions when it comes to estate planning.
Q: What's the Difference Between a Will, and a Trust?
A: Wills and trusts have some similarities. While many people think simply having a Will is sufficient, the fact is you need more. If you have a Will, you’re off to a great start. But a Will by itself is just a small piece of the Estate Planning puzzle.
There are some advantages and disadvantages to both wills and trusts, so it's always important to speak with your financial planner about your circumstances to determine which of the options are best for you. Ultimately, wills and trusts are both estate planning tools and can work together to create the best plan for an estate. The main differences between a will and a trust are:
- Wills become effective after death, whereas some trusts are effective upon creation.
- Wills direct who receives property upon death and appoint a legal representative to oversee this process, whereas a trust can distribute property prior to death.
- Trusts cover only property placed in the trust, whereas wills cover anything owned solely by the person creating the will.
- Wills are public record, whereas generally a trust remains private.
Q: I’m worried my family will contest my will. What can I do to prevent this from happening?
A: All families have challenges and sometimes, issues spill into the planning and settling of an estate. There are several things you can do to make the arrangement you intend more likely to be upheld once you are gone:
- Ensure your will is properly executed by working with an experienced fiduciary highly experienced in estate planning.
- Be clear and concise naming your beneficiaries.
- Sign and notarize your estate plan.
- Explain your decisions to family while you are still alive.
Q: My parents never talk about their estate plan with me. How can I break the ice?
A: The thought of death can be an uncomfortable conversation, especially for older parents and grandparents. This topic can make them feel “unwanted”. Many people mistakenly picture estate planning as aggressive battles for assets, so they become hesitant to proceed during their lifetime because they wrongfully think it might take away their right to enjoy their own properties. In addition, some parents think that depending on a future inheritance will discourage children from working hard.>Breaking the ice with parents and grandparents might be easier than you thought. Based on past experiences, the following factors can lead to successful communications:
- Be honest and sincere.
- Find the right time and right environment.
- Stress the importance and benefits of having a solid estate plan and discuss the costly consequences if no plan is in place.
- Be helpful to older parents and grandparents.
Q: How do I Avoid Estate and Inheritance Tax?
A: Much of your Estate Planning is done with taxes in mind. The ultimate goal is to leave the absolute most you can to your heirs. Strategizing by taking action to minimize assets lost to taxes is an effective way to achieve your goal. Understanding potential types of taxes is important:
- Estate tax: A tax imposed on estates worth more than a set value. The tax is only assessed on the amount that exceeds the maximum, not the entire value of the estate.
- Inheritance tax: A tax paid by someone who inherits either property or money from someone who has died.
- Gift tax: A tax that’s applied on gifts exceeding a certain dollar amount. Note the giver, not the receiver, is responsible for any tax.
For many years, average families used their estate plans to avoid or reduce estate and inheritance taxes – the taxes due on your estate when you die. However, federal estate tax is now levied on only very wealthy estates – estates worth well over $11 million. So most people with average-size estates do not need to worry about estate taxes. That said, a few states do levy estate and inheritance taxes on smaller estates and if you live in one of those states and you have a substantial amount of property, you may want to use your estate plan to try to reduce or avoid these taxes.
Q: How Can I Start a Conversation with my Family about the importance of Having a Will or Estate Plan in place?
A: In modern days, the best results come from continuous and transparent estate planning efforts. Some important benefits of this method include:
- Start by eliminating conflicts, and open up room for hard conversations. Parents and family members should address issues now to avoid misunderstanding and conflicts after death, which will be very expensive and hurtful to reconcile.
- Bring your family together and pass family values. Clear and thoughtful instruction from estate planning documents will unite family members to go through a tough time together, increasing their pride for family history.
- Help prepare your family for uncertainties. It will make the transition to assisted, memory care or long-term care facilities less stressful and allow family members to have a sense of the financial assets available for such care.
Updating Your Estate Plan
Once you have your estate plan made, it is not something that you can forget about. As you approach your review process, on broad terms, you are looking to ensure that your intentions have not changed, that the right people are included, that major life changes are reflected, and that all other major changes are notated.
There isn’t a hard rule about when you should update your Estate Plan, but a good rule of thumb is try to update it whenever you have a major life event (birth of a child, death of someone important to your plan, marriage, divorce, etc.). And if you find you haven’t had any life events in recent years, try to review and update as needed every 3 - 5 years.
Final Thoughts
An effective estate strategy can spell out your wishes and ensure that they're carried out – even if you are unable to communicate. It can even designate someone to manage your financial affairs should you be unable to do so. At Agemy Financial Strategies, we have an array of will and estate planning solutions to guide you through the entire process of creating last wills and testaments, living trusts, powers of attorney, and living wills — all with the help of our trusted, friendly financial planners.
If you have any questions on our company, services, values or more, contact the retirement income experts at Agemy Financial here today. Our financial advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call.