How to Make a Better Estate Plan

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Taxes can damage your estate’s total worth if you do not prepare in advance. Everyone’s financial situation is different, which requires unique estate planning to meet your needs.

The estate of high-net-worth individuals and couples could face a 40 percent federal estate tax on any money that exceeds the federal estate tax exemption. The exemption for 2024 is $13.61 million, but it could revert to about $7 million at the end of 2025. It makes it essential to take advantage of it now.

Estate planning has many tools you can use to protect your assets from taxes and creditors. Setting up your estate with these protections soon will help ensure that your assets get transferred to the people you want them to when the time comes. Waiting too long may mean that death causes your estate to go through probate, giving your beneficiaries far less than you hoped. It is also possible that you may become incapacitated.

Creating a Will

The first thing you want to do after making a list of all your assets is to create a will. You can do it online or with an estate-planning lawyer. This document is a starting place for a good estate plan.

A will provides your beneficiaries with guidelines showing how you want to divide your assets. Remember that a will does not enable your assets to avoid probate. A court will need to verify its validity, which will cost.

Reduce Your Estate Through Gifting

One of the best ways to ensure that some of your assets get into the right hands is to give gifts while you are still alive. In 2024, you can provide gifts of up to $18,000 to as many individuals as you want. Couples can give up to $36,000 to the same person. These gifts do not affect your lifetime gift exclusion amounts, but giving more than that will.

You can also give gifts by paying for someone else’s medical bills or education costs. The gift must be paid directly to the institution, not the individual. These gifts do not count as part of your estate gift exemption.

Charitable giving is another option you can do in many ways. Giving to charities can be done through trusts, a will, or directly, but the charity must be approved. You can also provide the required minimum distribution directly to a charity. The Internal Revenue Service limits contributions to 60 percent of your adjusted gross income, but other limits may also apply.

Create a Power of Attorney Document

Creating a power of attorney (POA) document ensures that your assets are in the right hands if you become incapacitated. The document appoints an individual (and a secondary) to direct your financial and medical plans when you cannot. If you prefer, you can separate the handling of financial and medical issues between two people.

Power of attorney can also be durable, which means the person with that authority retains it after you become incapacitated. The National Council on Aging says that some states permit springing durable POAs. These documents only take effect after you become incapacitated.

Conduct a Roth Rollover

Rolling over an IRA or a 401(k) into a Roth account can help you save money in taxes. You will have to pay taxes on the money you roll into the new account, which can help you save money from taxes later. It reduces the size of your retirement accounts, making your required minimum distributions (RMDs) and taxes smaller.

Roth accounts do not have RMDs. You can simply leave the money in the account, letting it continue to grow as long as you want. You can leave it there if it is not needed and make withdrawals for special purchases or vacations or give it to your beneficiaries.

Beneficiaries receiving a Roth account must empty it within 10 years. The good news is that they receive the money tax-free.

Buy Life Insurance

If your estate cannot give each beneficiary equal amounts, you can make up for the difference with life insurance. You also can use it to cover possible heavy medical costs such as long-term care with a rider on the insurance policy. The policy also helps ensure you give as much as possible to your heirs without touching other money for illness or death.

Include Non-Physical Assets

When you prepare your estate plan, include assets that are not physical. It includes life insurance, retirement accounts, bank accounts, stocks, cryptocurrencies, patents and copyrights, business documents, and more. Also, add information on how to access them in a separate document because wills become public once probate is complete.

Start a Trust

Trusts are available for almost any purpose. You can use them to provide for a disabled child, future education needs, a spouse, or as an inheritance. The documents can provide instructions and details that a will cannot.

All trusts are either revocable or irrevocable. A revocable trust enables the person creating it to add or remove assets at any time or cancel it. Once established, you cannot change an irrevocable trust.

Creating a trust is beneficial because it takes assets out of your estate, reducing your tax liability. The assets are given to your beneficiaries much faster than those in a will because of probate.

One trust created for many couples is a spousal lifetime access trust (SLAT). It is irrevocable, but you name your spouse as one of the beneficiaries. It enables the spouse to withdraw assets when needed. Your spouse can also create one naming you as the beneficiary.

A potential problem with this kind of trust is that you no longer have access to those assets if your spouse divorces you or dies. Clauses can be put into the trust document to cover this possibility.

Even though you can do much of your estate planning online, you can learn about more asset protection strategies by talking to an estate planning attorney. They can provide many ways to help protect your assets from creditors, taxes, and those who are tempted to challenge your documents.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.