Proper estate management is critical when working toward a more sound and stable financial life. From your wills to beneficiaries and beyond, estates require thoughtful strategies. Yet, many Americans still haven’t protected themselves in the ways they should. In fact, only 40% of adults have a will or living trust.1
If you don’t have documentation in place to direct your wishes, the courts may decide what to do with your estate when you pass away. Preparing for the future and adequately protecting your financial life take care and consideration. By starting with these tips, you’ll be on the path to creating a more stable foundation for your family.
1. Prepare to Enjoy a Long Life.
Thanks in part to advances in medicine, we’re living longer than ever, meaning you will probably need to account for a longer lifespan than previous generations. Without thoughtful strategies, outliving your resources can be a real threat to your estate and your family’s financial standing. Today, one-quarter of all 65-year-olds will live into their 90s—and 10% will live beyond 95 years old.2
Furthermore, 20% of 65-year-olds today will need assisted care at some point in their lives for more than 5 years.3 As we age, our expenses increase. With long-term care costs continuing to escalate, you need financial strategies to help you prepare for longevity. Here is a snapshot of some of the annual costs to anticipate for your future:4
• Private room in a nursing home: $97,455
• Semi-private room in a nursing home: $85,775
• Home health aide: $49,192
• Assisted living, 1 bedroom: $45,000
Preparing for these expenses with long-term care insurance can be a helpful strategy as you work to further protect your estate.
2. Review and Update Important Documents Regularly.
As life moves along, the details of your financial life will change, too. Reviewing your important documents can help ensure the details reflect where you are now and protect your future. For example, did you recently marry? Have a child? Lose a spouse? These factors can affect the beneficiaries of your account (among other details) and, without accurate documentation, create real difficulties for family members trying to settle estate details.
Do yourself and your family a favor by making sure your financial accounts and documents remain accurate as your life changes.5 In addition, new tax laws take effect this year that could impact your estate-planning strategies.6 Now is a good time to address what you may need to update in order to continue protecting your estate.
Consider addressing the following financial items:7
• Review retirement account details to confirm that your beneficiary listings are accurate.
• Make sure you have adequate life insurance with the correct beneficiaries listed.
• Designate transfer on death (TOD) details for accounts such as bank savings, CDs, and individual brokerage accounts.
• Update or revise your will to help ensure it reflects your current wishes.
Remember, any beneficiaries you name will override what you detail in your will.8 Make sure you have all the details aligned with your wishes in order to thoughtfully transfer your estate.
Percentage Who Do Not Have Wills by Generation:
• 18–36 years old: 78%
• 37–52 years old: 64%
• 53–71 years old: 42%
• 72+ years old: 19%
Source: AARP https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html
3. Consider an Irrevocable Life Insurance Trust (ILIT).
An ILIT is a trust that owns a life insurance policy and helps people minimize their estate taxes. This year’s estate tax threshold is $10 million in value per estate.9 By designating your estate—rather than a person—as the policy’s beneficiary, you make it an asset.
Once you set up an ILIT, you can’t make changes or close it out. When you or your spouse dies, your death benefits pay directly to the trust. From there, your estate beneficiaries (children, grandchildren, etc.) receive regular, tax-free payouts from the ILIT instead of a taxable lump sum.10
Here are some additional benefits of an ILIT:11
• It controls the beneficiaries’ receipt-of proceeds circumstances.
• It protects the cash value of the life insurance policy from creditors.
• It creates potentially lower insurance needs due to reduced estate taxes.
• It allows stronger protection and management of proceeds to any beneficiary on government aid.
• It reduces the size of your estate, thereby potentially lowering your tax debts.
4. Try to Avoid Probate.
People go through the probate process after someone dies and his or her estate must transfer to his or her heirs. The legal process is usually costly and cumbersome. It may also involve the general administration of someone’s estate.12 Each state’s limits to probate vary, including the size of the estates that must go through the process.13 You will need to identify the specific laws based on where you live.
One way to possibly avoid probate is to set up your financial accounts to transfer on death (TOD). By doing so, you specifically assign who receives which assets and how much he or she gets. You may also be able to avoid the costly probate process.14
Overall, probate fees add up and usually vary. Here are some fees to be aware of:15
• Accounting Fees: The amount you pay depends on your estate’s overall value and the type of assets you own.
• Appraisal and Business Valuation Fees: You will pay these fees when identifying the value of assets like real estate, business interests, and personal property.
• Attorney Fees: These fees are similar to the personal representative fees, and costs depend on the legal firm and state requirements.
• Court Fees: State laws define what fees you must pay, ranging from a few hundred dollars, a few thousand, or more.
• Personal Representative Fees: These fees are paid to the estate administrator or executor, which state laws also define.
Assets Subject to Probate:
• Individual assets, Such as bank accounts
• Tenants-in-common assets
• Beneficiary assets with no beneficiary or predeceased individuals designated
• Assets not in a trust
Source: The Balance https://www.thebalance.com/what-are-probate-assets-an-overview-3505271
Your unique financial life and estate goals will drive the strategies that work best for you. Coordinating with a financial professional can help you proactively address your needs and protect your estate. Whether you have gaps to fill or you need to lay the foundation, remember that today’s efforts will help you prepare for tomorrow’s comforts.
If you are retired or planning for retirement, we offer a no charge, no obligation financial analysis. We’ll review your key documents, check each investment, and conduct a stress test of over 1000 market scenarios that you could face during retirement.
We hope to show you ways to improve and grow your cash income. And give you a strategy to manage the risks you face (like inflation). We’ll also provide an unbiased calculation that shows how much you should be able to safely spend in each year of your retirement.
The analysis is detailed and comprehensive, and it’s free for you. When the process is complete we’ll even give you a $100 gift certificate to Ruth’s Chris Steak House.
Some of those who take advantage of this offer become clients of our firm. But often we serve to validate the strategies already in place with perhaps a few suggestions. The process and offer are designed for those age 50 and up who have retirement assets of $500,000 and over (including 401k’s IRA’s, stocks, bonds, mutual funds, annuities, and bank accounts).
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Advisory services offered through Commonwealth Retirement Advisors. This information is for educational purposes only and should not be construed as advice. You should discuss your personal circumstances with the proper financial advisors prior to making any decisions. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
Advisory services offered through Commonwealth Retirement Advisors. This information is for educational purposes only and should not be construed as advice. You should discuss your personal circumstances with the proper financial advisors prior to making any decisions. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Material has been provided by third party sources including Platinum Advisor Marketing Strategies LLC.