Estate-planning is discomforting—and often brings the worst of family dynamics to the surface. Do most people even need it, since the estate tax doesn’t kick in for a married couple unless their legacy is at least $22.4 million?
We say yes, because the right metric isn’t exemption from estate tax but rather financial peace of mind. And all of us deserve that—not just the very rich.
Let’s say you’re watching your parents age, and you’re not certain what arrangements—if any—they’ve made for the distribution of their assets upon their deaths.
What not to do is confront them with a barrage of questions and accusations about their financial naiveté—or worse, their parenting skills in days long gone. Perhaps it’s self-evident (though maybe not, since so many families embroil themselves in estate disputes), but the prerequisite for prudent estate-planning is honest discussion among all family members concerned. The more transparency, the better. And for those interested in their parents’ estate plans, remember to listen to them—not talk at them. They have their own priorities, goals—and fears.
That said, estate planning begins with three basic documents:
- A will; otherwise, estates are subject to the vagaries of state inheritance laws;
- A living will, spelling out wishes about heroic medical intervention, particularly near the end of life; and
- A health-care proxy (in some states, incorporated into a living will), designating who will make health-care decisions if the proxy writer becomes incapacitated.
A Deeper Dive
For some, the three documents above are enough to provide the protection and security they seek. But for many others, considerably more planning is required. For the very wealthy— those for whom estate taxes will be levied—intensive planning is always in order, but that small subset of the population is usually aware of their situations and options. However, many others can also benefit from basic estate-planning guidelines:
- Remember that under current law you can gift $15,000 ($30,000 for married couples) every year to as many beneficiaries as you like, without facing gift taxes. So a married couple with four grandchildren, for example, can give them $120,000 each year, and owe no gift tax. In addition, you’re entitled to a lifetime gift-tax exemption of $11.2 million ($22.4 million for a married couple), but to the extent you use it, your estate-tax exemption will be reduced.
- Want to give still more? A universe of trusts is open to you. Some, like grantor-retained annuity trusts, are typically used to benefit family members. Others, like charitable lead trusts and charitable remainder trusts, can benefit both family and designated charities. Still others have been devised to benefit surviving spouses, children, or grandchildren. Many trusts also carry tax advantages for grantors and beneficiaries. But don’t enter the trust arena without experts at your side— especially a trusts-and-estates attorney and a tax advisor.
- And those with substantial wealth and charitable intent may consider options such as funding a private foundation or setting up a donor-advised fund.
Estate-planning is always designed to assure that wishes are made plain and are carried out. And for some, reducing the size of their taxable estates is important. Both these goals can be met, often through a variety of means. The intricacies of estate-planning are best left to legal, tax, accounting, and investment specialists. But the essentials of the plan should be known to all those affected—and the more planning done in the sunlight, the better. Ideally, trust among all participants in the estate-planning process will replace anxiety and miscommunication.
At People’s United Bank we can help you assemble the right team to meet your estate-planning needs.