A good estate plan minimizes taxes and conflicts
For many, updating their estate plan is one of the last things on their mind. Yet when a friend passes suddenly or you hear a horror story of an unplanned estate gone awry, the idea flashes. If you don’t care, then go ahead, ignore making updates. The lawyers and tax collectors may be your beneficiaries.
Many are lulled into believing that the tax penalties of their death are minimal because the federal exemption is $11.2 million per taxpayer or $22.4 million per married couple. But there may be more than just federal taxes to consider.
Your estate typically includes assets that you don’t think about every day. Your life insurance, 401k, or the value of a business interest all may be included. Next, not all states are as generous as the Federal Government. My home state of Massachusetts has an individual exemption of $1 million or $2 million per married couple. This means that Massachusetts residents with assets including life insurance death benefits above $1 million or $2 million will be taxed at a rate just north of 10 percent.
The second reason to update your estate plan: to avoid chaos and confusion upon your death or incapacity. A solid estate plan is a set of documents that may be just as valuable while you’re living than to your family after your passing.
Benefits to an updated estate plan would be that you have a valid health care proxy and durable power of attorney.
Most pros feel that these two documents should to be updated every 3–5 years. This allows people of your choosing to make both health care and financial decisions on your behalf should you become incapacitated.
A living trust can provide benefits to you while living, the first being privacy. Trusts are named whatever you want, minimizing the frequency your name appears online. A second benefit is that you appoint the person in your trust to act as a successor trustee on your behalf. Trusts clearly stating the key factors or people who make the decisions regarding disability can simplify things immensely.
Disarray is possible even for those with current plans in place, typically due to lack of clarity.
It’s a common error to think that your four children won’t argue because you’ve left the family business to them equally. Rather than ensure family harmony, your plan without guidance outlining compensation, roles and rules for sibling minority owners who don’t work in the business is a recipe for disaster.