Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer
People often mistakenly think of estate planning as something that only older or wealthier people have to do, but this couldn’t be further from the truth.
Estate planning is an essential tool to help anyone manage and preserve the money and property you have while you’re alive, and to ensure that it’s distributed in the way you want after your death. It is true, however, that estate planning needs will vary depending on a number of factors including your age, health, wealth, lifestyle, life stage, goals, and many other factors.
Watch and read more below for a look at estate planning needs throughout various stages of life and degrees of wealth.
You should use these as a simple guide to getting started and then seek professional advice to implement the plan that’s right for your specific situation and goals.
Young and single
If you're young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you don't, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).
In addition, all adults over 18 should consider having a durable power of attorney (which lets you name someone to manage your property for you in case you become unable to do so) and an advance medical directive (which can include a living will, durable power of attorney for health care, and a Do Not Resuscitate order).
You've committed to a life partner but aren't legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.
For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse's estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning.
You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die's estate tax exclusion, and a credit shelter trust created at the first spouse's death may still be advantageous for several reasons:
- Portability may be lost if the surviving spouse remarries and is later widowed again
- The trust can protect any appreciation of assets from estate tax at the second spouse's death
- The trust can provide protection of assets from the reach of the surviving spouse's creditors
- Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses
Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a noncitizen spouse (but an annual exclusion, $159,000 for 2021, is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.
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Married with children
If you're married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them.
You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family. And, you may also want to consult an attorney about establishing a trust to manage your children's assets in the event that both you and your spouse die at the same time.
Comfortable and looking forward to retirement
If you're in your 30s or 40s, you may be feeling comfortable. You've accumulated some wealth and you're thinking about retirement. Here's where estate planning overlaps with retirement planning. It's just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death.
You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as a 401(k) or individual retirement account (IRA). Use our wide variety of retirement savings calculators to help you determine how much you’ll need to save in order to live the life you want in retirement. (And check out our article, on how to estimate your retirement needs in six steps.)
Wealthy and worried
Depending on the size of your estate, you may need to be concerned about estate taxes. For 2021, $11,700,000 is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent. Similarly, there is another tax, called the generation skipping transfer (GST) tax, that is imposed on transfers of wealth made to grandchildren (and lower generations). For 2021, the GST tax exemption is also $11,700,000 and the top tax rate is 40 percent.
Note however that the Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and be cut by about one-half. Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you live.
Elderly or ill
If you're elderly or ill, you'll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.
Whatever stage of life you're in, remember...
There’s a lot to consider with regard to estate planning no matter what stage of life you’re at and the stakes – oftentimes the wellbeing and care of those you love most – couldn’t be higher. That’s why it’s important to enlist the help of a trusted and strategic professional to ensure you have the best possible plans in place for your specific situation and goals. It’s also why it’s essential to review and update all of your accounts, policies and beneficiaries on a regular basis, to be sure any necessary changes are made to reflect changes in circumstances or preference.
We help our clients do this through a proprietary Plan Well, Invest Well, Live Well™ strategy that provides comprehensive financial planning through every stage of your own life and beyond, to include the estate you want to leave to loved ones. See how we can help you to create a Plan Well, Invest Well, Live Well™ strategy for you and your loved ones now.
Presented by Principal/Managing Partner Laurence Hale, AAMS, CRPS®. Prepared by an independent third party for Commonwealth Financial Network®, copyright 2021. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com (http://www.whzwealth.com).