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4 Ways To Upgrade Your Estate Plan

Review Estate Plan

Everyone has heard stories of famous people who died without a decent estate plan in place. This has been a hot topic in recent years with Prince and Aretha Franklin acting as the unfortunate faces of the phenomenon. But it’s not only freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t create one either, which brings me to say something you’ve probably never heard someone say: don’t be like Abraham Lincoln.

Most people would like to plan for a nice life and a good retirement, so why don’t you plan for a great end of life, too? Let’s take a look at the four ways you can improve your estate plan, safeguard your assets and build up a level of control and certainty for your family.

Review Beneficiary Designations

Many types of accounts can be passed to heirs or loved ones without going through the sometimes expensive and time-consuming process of probate. For example, life insurance policies, 401(k)s and IRAs may be transferred through beneficiary designations – which means that you specify who should inherit your accounts once you pass away by filing out a beneficiary form. It is often possible to name successors or backup beneficiaries, and to even split up accounts by dollar values or percentages between the beneficiaries of these forms.

A rule of thumb is to refresh and review these forms and designations every few years, particularly after major life events such as divorce, marriage or the birth of children or grandchildren. In some cases, a separation might wipe out a beneficiary designation for an ex-husband or wife. Accounts such as 401(k)s require you to change designation or your ex-spouse could inherit it – even when you remarry in some situations.

Take time and make sure all of your retirement and investment accounts have beneficiaries attached and updated to make sure your assets end up with the right people when you die.

Have Proper Life Insurance

One of the primary uses of life insurance is to protect against loss of income in the case of an individual’s early death. The most critical time to have life insurance is usually when you’re working and supporting loved ones with your income.

This may still be the case in retirement. If one spouse is creating most of the retirement income through Social Security, continuing work, a pension, annuities, or another source of income, it is reasonable to keep life insurance to provide for the surviving spouse or dependents upon the death of the individual.

In addition to helping guard against lost income in the event of death, life insurance may also provide a means for transferring income tax-free to the next generation. If one objective of retirement and estate planning is to pass on an inheritance, life insurance can be a very efficient vehicle to achieve that goal.

Additionally, life insurance is able to provide much needed cash-flow and liquidity for estates that may be subject to estate taxes or that have a lot of illiquid assets like family businesses, farms or collectibles. With an irrevocable life insurance trust, funded with a life insurance policy, a trustee might acquire assets from the estate with the life insurance funds in order to provide liquidity to that estate.

Avoid Probate Using Trusts

Part of efficient estate planning is to have the correct will and trusts in place. While nearly everyone will need a will at some stage, the same does not always apply for trusts. In certain cases, setting up a trust to shelter or control assets is not worth the price if an individual has extremely limited resources. However, as an individual’s estate planning needs and assets increase, the value of a trust as part of the estate plan also goes up.

There are two primary types of trusts: revocable and irrevocable. For general estate planning needs, a revocable trust will cover most people’s issues.

Anyone can fund revocable trusts with their assets and keep using assets today without altering their income tax nature. Such types of trusts function as a more efficient way to pass on assets outside of probate and allow a trustee to help manage assets for their beneficiaries.

On the other hand, an irrevocable trust may be a way to provide creditor protections, separate assets from the annual tax liability of the original owner, and even help to reduce estate taxes in certain circumstances. However, irrevocable trusts can also be more complex and expensive. Before you move any assets into an irrevocable trust, understand the complexity and restrictions that might be placed on them.

Incorporate Charitable Giving

Many Americans give to charitable organizations on an annual basis – it’s part of achieving true wealth. True affluence is about having the freedom to accomplish your goals, and for many that means that they are able to leave a legacy to your own church, university, charities or other organization or cause you care about.

Charity is a more comfortable way for you to give away money as you may need the assets to sustain your income during retirement, however upon your death is money no longer necessary and can be passed onto a philanthropic goal.

With charitable contributions as part of an estate plan, you can make outright gifts to a charity or set up a charitable remainder annuity trust (CRAT) in order to offer income to a surviving spouse or heir, with the rest going to the charity. Interestingly, you can also set up a CRAT at death by transferring your IRA, which may be an effective way to both generate an income for a loved one and donate to charity in a tax-efficient manner.

Ultimately, your estate plan is unique to your circumstances. Everyone is going to pass away at some point and you must have an estate plan in place at that point. A good portion of an estate plan isn’t even about the money – it’s about safeguarding family, ensuring assets pass smoothly to heirs you choose, and removing complex legal challenges for your loved ones. Remember, taxes and liquidity are issues that need to be addressed, too.

Take the time to plan for a good end of life and update your estate plan. Contact Moulton Law Offices today to learn more.

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