Tips for Drawing Up an Estate Plan April 27, 2017


An estate plan is a necessity if you want to make sure that your assets are inherited by the people you want to inherit them, whatever the size of your estate. In cases where estate taxes apply, having an estate plan can reduce the taxes your beneficiaries will have to pay. The following tips are designed to help you in the estate planning process.

Decide Who Will Inherit What

Those who die intestate, or without a will, have their assets distributed according to the law in the state in which they lived. Failing to draw up a will or trust can result in the distribution of your assets in a different manner than you might have preferred. This can include nonfinancial assets that have sentimental value, such as family heirlooms and other assets such as cars, art, etc. It should be noted that assets held in accounts such as IRAs and other retirement plans and insurance contracts may already have beneficiary designations as per their account agreements.

Decide How Funds Will Be Spent

In cases where you plan to have funds paid to particular entities after your death, it may be necessary to establish a trust that specifies exactly how this is to be accomplished. Examples might include funds allocated to care for a minor, or to support a charity. While the trustee is legally required to make distributions as specified, going over your plans with the trustee to make sure that they understand your instructions can be helpful to ensure that they are carried out as you intended.

Take Steps to Reduce Estate Taxes

If your beneficiaries are likely to pay estate taxes, and perhaps income taxes as well, on the amounts they inherit from you, you can take steps to minimize the amount of taxes they will owe. One strategy for accomplishing this is to specify in your will or trust that charities will receive taxable assets if such entities are among your beneficiaries. Your tax-free assets, which might include life insurance and Roth retirement accounts, could be left to your non-charity beneficiaries. Another way to lower the amount left in your taxable estate is to gift amounts to your beneficiaries during your lifetime. In 2017, the annual gift tax exclusion amount is $14,000.

Use Insurance to Pay for Taxes

A substantial amount of the taxable assets left for your beneficiaries can be lost to estate taxes and income taxes. One way to defray this expense is to purchase life insurance. Proceeds from life insurance plans are tax-free to your beneficiaries, meaning that these amounts can be used to offset any taxes owed on inherited assets. For instance, if you meet with your estate planner and find that your heirs can expect to pay $1,500,000 in estate and income taxes, you could buy an insurance policy for that same amount to cover the entirety of the taxes payable.

When drawing up an estate plan, it can be helpful to work with a team of advisors to ensure that you have access to expertise covering all aspects of the process. At a minimum, you may want to consider consulting with an estate attorney who is knowledgeable about drawing up wills and trusts and a financial advisor who can help you invest your assets appropriately.

Estate planning is not a simple process, yet many investors procrastinate when it comes to the task. You work extremely hard to amass assets during your lifetime, failing to spend the necessary time to plan your estate can lead to friction among your heirs and to these assets not being distributed as you would like them to be. Proactive planning is advised to make sure your estate plan is in order and capable of disposing of your assets according to your wishes.

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Samuel Rad is an award winning fee-based Financial Planner with Affluencer Financial Advisors in Los Angeles, California. Mr. Rad has multiple licenses in the investments, real estate and insurance fields. He has spent a considerable amount of his career lecturing at universities and companies, on financial topics such as financial planningretirement planning, and estate planning.

He currently lectures at UCLA and West Los Angeles College.