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  • Writer's pictureAndrew Cremé

Estate Planning’s Four Best Kept Secrets

Updated: Apr 13, 2023

suze orman quote on estate planning

Suze Orman once said, “Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think.” This is very true when it comes to general estate planning that most everyone should consider putting into plan. Suze explained our first best kept secret, estate planning, isn’t that hard.

Estate planning is asking others to treat you a certain way if you can’t speak for yourself and making your wishes known for how you want your belongings or children cared for if you passed away. There are five simple documents to consider getting in place if you haven’t.

Table showing 5 steps to estate planning

There are a few things that are often overlooked in these documents that should be considered. First, you can say where you want your belongings to go, but if they have a beneficiary on a bank account, for example, the beneficiary will receive the account regardless of what the will states. Second, there are different kinds of powers of attorney. Some powers of attorney are effective immediately, and some are only effective after medical doctors certify that you are incapacitated. There are also account specific powers of attorney where you can give limited powers. Third, guardianship wishes need to be approved by a judge, so they also have a responsibility that children and adults who cannot care for themselves are in the care of competent individuals. Fourth, and related to our next best kept secret, is that wills in some states like Texas, often need to be probated before a judge.

What is probate exactly? It is a public court process when someone passes away to settle the estate. If the deceased had a will, an attorney would submit it to the court and in turn the court provides letters of testamentary. These letters are what allow the executor of the will to get things accomplished by retitle and legally transferring assets. Without anyone fighting or contesting the will, this can still be a lengthy process stretching out many months. If the will is contested, this process can instead take many years. This leads us to our second best kept estate planning secret – you can bypass the need for probate completely.

By utilizing transfer on death agreements, payable on death agreements, and beneficiary designations, most assets can get to the intended people outside of a courthouse. Bank accounts, retirement accounts, investment accounts, and even homes and cars as well would all be potentially eligible to be structured in a probate bypass manner. If a few accounts happen to be overlooked, many states also have a quicker and less costly version that allows smaller dollar amounts to be probated more efficiently. Another consideration to bypass probate altogether is the use of a trust. By creating a trust and funding it by retitling accounts into the name of the trust, you can set the terms of who gets what and when outside of court.

Now our third best kept estate planning secret may surprise you, but it is that gifting assets while you are alive can be a bad thing. A common strategy that people consider is utilizing the full federal estate exemption amount to give their children assets. The secret is that you want to pick the right assets to give. These are assets with a high cost basis that are not necessarily likely to appreciate and grow as quickly. To paint a picture, it is much better to give an acre of land valued at $15,000 that you paid $13,000 for, than to give some AT&T stock that is valued at $15,000 but you only paid $3,000 for it. In that stock example, you have given $15,000 with a $12,000 tax liability once it is sold in the future. If that same stock was gifted upon death, your child would receive all $15,000 tax free.

Our fourth and final best kept estate planning secret is that you can set and forget a tax free inheritance for your heirs. How exactly? Let’s consider a hypothetical 70 year old named Jim. He has a pre-tax IRA with $2,500,000 that he is living off of with Social Security. Jim in concerned that his kids have high incomes and he is worried about passing on a tax liability. After reviewing his financial plan, it was determined that Jim could comfortably set aside $1,000,000 with the intention of it being part of the inheritance. Because the money hasn’t been taxed yet, taking it all out and passing it down now is not a viable option.

An option that the financial advisor helped Jim come up with was to utilize life insurance to pass down the funds after tax. An insurance policy was quoted and Jim was offered a 40 year policy with a $1,000,000 after-tax death benefit for $45,245 per year premiums. At the same time, annuity companies were reviewed and they found an annuity offering to pay Jim $47,500 a year for the rest of his life in a $1,000,000 lump-sum deposit policy. By structuring things in this manner, the inheritance is locked in and the upkeep is minimal due to the nature of guaranteed payments not subject to the market fluctuations. In addition, the life insurance policy could be placed in a life insurance trust that would provide further protection to future estate law changes.

These four estate planning best kept secrets are ways that everyone can deepen their knowledge. They are specific in nature and should be reviewed with qualified legal and tax professionals. It’s important to have a team of advisors consisting of tax, legal, and financial when making major estate planning updates. Our firm specializes in empowering clients to keep more of their earnings while making money make sense. Reach out today for your complementary assessment.

The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The opinions expressed here are those of and not necessarily Raymond James. Opinions are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we do not provide advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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