A Guide to Navigate Life’s Changes and Secure Your Legacy

It’s crucial to regularly reassess your preferences for the distribution of your assets to your heirs upon your passing. Life events such as marriage, divorce, the birth of children, changes in financial status, or the acquisition of new assets can all influence your estate planning needs. To address these considerations, establishing a last will and testament is a wise choice. However, it’s essential to be mindful of a key point: a will may not automatically bypass the probate process.

Comprehensive Considerations

For parents with minor children, in case of your passing plan, for their care by appointing legal and financial guardians in your will; compensation for this role can also be taken into consideration. Through trust provisions and instructions in your estate plan, you can address financial concerns related to your heirs, like fiscal irresponsibility or special needs. You can also plan for the distribution of an heir’s share in case of their predecease, using per capita or per stirpes provisions. Lastly, if giving gifts to your heirs while alive, ensure they align with your estate planning goals and fulfill specific wishes.

If you have specific medical preferences, such as decisions about resuscitation, breathing or feeding tubes, and life support, it’s vital to establish a living will. This document outlines your medical treatment preferences in case of incapacity. Additionally, if you want someone to make medical and financial decisions on your behalf if you become incapacitated, consider setting up a durable medical and financial power of attorney. This legal document appoints someone to act as your representative for medical and financial matters during incapacity.

When reviewing your estate plan, consider if the chosen individuals (e.g., executor, power of attorney, guardian, trustee) are suitable for your needs and if you need contingency options for unforeseen circumstances. Additionally, plan for covering final expenses like debts, funeral costs, and legal fees by setting aside funds, possibly through life insurance or a dedicated savings account.

Asset-Related Concerns

If a significant part of your wealth is tied up in illiquid assets like real estate, consider how this can affect your heirs’ ability to cover expenses and make decisions about these assets. To address this, allocate additional liquid funds, such as life insurance. Additionally, ensure equitable distribution of assets with varying investments among your heirs to prevent disparities in their inheritances as asset values fluctuate.

Review your estate plan to prevent unequal “after-tax” amounts for your heirs. Examine the proportions of your non-qualified assets (which generally receive a step-up in cost basis, excluding annuities and U.S. savings bonds) and qualified assets (typically taxed as ordinary income to your heirs, except Roth accounts) to ensure they are divided appropriately among your heirs.

Include your digital assets in your estate plan if you have online accounts like online banking, digital storefronts, cloud storage, or emails. By utilizing a secure password manager, you can centralize access to these assets. It’s important to clearly outline your wishes for digital assets in your estate documents.

If you possess personal assets like jewelry, vehicles, or heirlooms, ensure they are part of your estate plan. Consider preparing a letter of instruction along with your estate planning documents or make arrangements with your heirs to determine how these specific assets will be distributed.

Probate and Asset Transfer Concerns

If you have jointly owned assets or accounts, carefully evaluate the titling (e.g., JTWROS, TIC, TBE) and whether it’s suitable for you and your joint owner, whether it’s a spouse or non-spouse. Be aware of how joint ownership might impact your estate plan, including its effect on the step-up in basis and potential conflicts with your estate documents.

To avoid the probate process without creating trust, you can utilize alternatives. This includes designating payable on death (POD) or transfer on death (TOD) beneficiaries for your bank and investment accounts. Similarly, name beneficiaries for qualified investments and insurance products, and avoid the generic “estate” designation to keep assets out of probate. In some states, you can use a beneficiary deed or TOD affidavit for real estate assets, streamlining their transfer without probate. These options simplify the asset distribution process and circumvent the often-time-consuming probate procedures.

If you want to avoid probate and have more control over asset distribution, consider establishing and funding a revocable living trust. A pour-over will can catch any assets missed by the trust but be aware that these assets won’t bypass probate.

Additional Considerations

If you’re interested in leaving a portion of your estate to charity, consider the tax efficiency of your assets. Pledging tax-inefficient assets, like those with no step-up in basis or IRD (Income in Respect of a Decedent), may be an optimal choice for your estate planning. Depending on your intentions, you might also consider other charitable vehicles such as a charitable remainder trust (CRT).

If you’re concerned about federal or state estate tax liabilities, explore ways to “freeze” or remove certain assets from your estate using irrevocable trusts. Implementing gifting strategies, such as utilizing the annual exclusion for gifts or the unlimited gifting exclusion for education and medical expenses, can also be considered.

If you have heirs with special needs, be cautious about including them in your estate plan, as it may affect their eligibility for public assistance related to their disability. A special needs trust (SNT) could be appropriate for their situation.

Review state-specific issues like inheritance tax, TOD/POD restrictions, community property laws, and probate regulations that may impact your estate planning preferences in your jurisdiction.

Final Thoughts

Estate planning is an evolving process that must adapt to life’s changes, from marriages to financial fluctuations. Prioritize clear communication of your wishes, consider tax implications, and keep an eye on state-specific regulations to secure your legacy effectively.

The information in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. Integrated Financial Partners does not provide legal/tax/mortgage advice or services. Please consult your legal/tax advisor regarding your specific situation. This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory service. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Investment advice offered through Integrated Financial Partners, doing business as Konvergent Wealth Partners, a registered investment advisor.