October is recognized as Estate Planning Awareness Month, a reminder to reflect on the importance of organizing your affairs for the benefit of your loved ones.
As we approach 2025, at the end of which the current estate tax exemption is set to expire to around half of what it is now, it’s important to revisit your estate plan and explore options like life insurance and trusts to safeguard your legacy.
Why Estate Planning Matters
Estate planning involves organizing your financial affairs so that your assets and responsibilities are managed according to your wishes upon your death or incapacitation. An effectively written and legally executed estate plan aims to provide peace of mind for you and your loved ones during a time of loss or medical crisis, and can pave the way for an easy, tax-advantaged transfer of assets and decision-making authority to your chosen beneficiaries.
Key Legal Documents to Consider
Effective estate planning often relies on several essential documents:
- Will: This legal document specifies how your assets should be distributed after your death and chosen guardians for your children. It is crucial for specifying which items go to whom, even if you also have a trust; in that case, it functions as a pour-over will. Dying intestate can complicate matters, as state laws and probate court will dictate asset distribution.
- Trust: There are many types of trusts, but in general, a trust can allow you to designate a trustee to manage your assets for beneficiaries. This can expedite asset distribution and potentially bypass probate court, as well as keep matters private.
- Power of Attorney (POA): This grants someone the authority to make financial or medical decisions on your behalf if you become incapacitated.
- Living Will: This document outlines your preferences for medical treatment and end-of-life care, so your wishes are honored.
The Importance of Life Insurance and Trusts
As the estate tax exemption changes, it’s wise to explore life insurance and trusts for potential tax advantages. Life insurance offers tax-free liquidity for your family to cover expenses, easing financial burdens on beneficiaries. Trusts can protect assets from estate taxes and streamline distribution, potentially avoiding costly probate.
Many types of trusts can address different situations, so it’s essential to seek legal guidance for proper setup and execution.
Revisiting Your Estate Plan: Key Considerations
For the 2026 tax year, the lifetime estate and gift tax exemption is set to nearly halve. If the Tax Cuts and Jobs Act (TCJA) provisions expire as planned, it could drop to around $7.5 million and $14.5 million, respectively.
Families facing potential estate tax liability in 2026 should consider transferring assets sooner. Consulting with your attorney or financial professional can help identify tailored strategies.
Common Estate Planning Mistakes
The most significant mistake is not having a plan at all. Other pitfalls include failing to communicate your wishes, naming only one beneficiary, and neglecting to update your plan after major life changes like marriage, divorce, or the birth of children. Regularly reviewing your estate plan—ideally every three to five years—can help ensure your documents remain aligned with your current situation. Without a clear estate plan, your assets could end up in probate court, leading to delays and potential family disputes, distribution will be based on state laws that may not reflect your intentions.
Conclusion
Procrastination is the enemy of effective estate planning, especially as we approach significant changes in estate tax laws. Take this opportunity during Estate Planning Awareness Month to organize your affairs and make certain your wishes are honored. Remember Benjamin Franklin’s words: “By failing to prepare, you are preparing to fail.” Acting now will help protect your loved ones and facilitate efficient management of your estate.
We are available to meet with you, your estate attorney, and your tax professional to create or review your estate plan. We can also bring these disciplines to the table if you don’t have them in place. Call us! You can reach Chad Albano and the team at Global View Capital Advisors by scheduling an appointment here: https://app.acuityscheduling.com/schedule/7c4635ff
Sources:
- https://www.investopedia.com/articles/retirement/10/estate-planning-checklist.asp
- https://www.ncoa.org/adviser/estate-planning/estate-planning-guide-checklist/
- https://arizonastatelawjournal.org/2024/01/23/the-future-of-estate-planning-preparing-for-a-new-wave-of-laws-and-regulations/#:~:text=The%20Tax%20Cuts%20and%20Jobs,%E2%80%9Csunset%E2%80%9D%20to%20approximately%20%245%2C490%2C000.
- https://www.fidelity.com/learning-center/wealth-management-insights/TCJA-sunset-strategies
- https://www.texasbar.com/AM/Template.cfm?Section=articles&ContentID=62534&Template=/CM/HTMLDisplay.cfm
- https://www.genworth.com/aging-and-you/finances/cost-of-care
