Estate Planning – Wills and Other Ways

Many Americans believe the words ‘estate planning’ are just a fancy term for “Having a Last Will & Testament”; however, nothing could be farther from the truth. I often speak to real estate investors or entrepreneurs when they start thinking about being safer and smarter in business gloss their eyes over when we bring up estate planning.  When I ask them why they believe this way they tend to fall into 3 main categories.

Category 1:  “I’m too young to have a will & don’t have anything to pass on or anyone to pass it on to.”

Category 2:  “My wife & I made our wills when our daughter was born, we’re good to go.  We already know who-gets-what when we die.”

Category 3:   “I don’t want to even think about getting a will because I don’t want anything to happen to me.”

Notice how the rest of estate planning that is key to full protection, such as, a Living Will, Durable Power of Attorney for Health Care, Durable Power of Attorney for Financial Matters, Do Not Resuscitate Order, Organ Donation Form, Pour-over Will, or Living Trust is not mentioned in the above three categories?   All of these items are critical to have in any full estate-planning package but most people either don’t know about them or believe having a last will and testament is enough. I think we’ve all seen enough news stories & TV movies at this point to realize that just having a will isn’t enough to avoid a whole lot of drama.

Why does it seem so complicated? 

Simple answer:  Because things change and people change.  Understanding estate planning is such an issue that according to this article in Forbes even people who understand that they need estate planning, are not even sure what they need and why. “A few years back a survey of estate planning attorneys reported that the attorneys said they believed a high percentage of the plans they prepared weren’t fully implemented and that the major reason for failure to implement is the clients didn’t understand the plans or what they needed to do after leaving the office.”

What to look for in an Estate Planner

Good estate planning involves education, and your planner explaining not just what you are getting – but what you need to do in order to receive the benefit. A good estate plan uses instruments like revocable trusts and proper corporate structures.  Failure to fund a trust can cause major issues later down the road, for real estate, a deed must be changed to show that the trust is the new owner. Other issues might be owning businesses personally or not splitting property assets with a spouse without property documentation (i.e. a pre or post-nuptial agreement stating that homes owned before marriage are retained in the original owner’s full ownership).  

Estate planners will also go over your bookkeeping, this is one issue that clogs up even litigations.  Showing business income and expenses properly and having the right setup and processes not only makes a huge difference in insulating yourself against life-damaging lawsuit judgments but when it comes time to do the accounting for your estate and heirs. Anyone who takes the time to really set up their structures now for their businesses to include the needs of their estate planning, are always better positioned than those who don’t. 

Estate plans are meant to grow with you, not be a “set it & forget it”  type of deal – so don’t forget about your beneficiaries.  

If you are a real estate investor or entrepreneur with the right set up in place, you’ll naturally review your estate plans as you grow because you’ll have set that process in place ahead of time.  For those who are new to the game though, you want to review your insurance policies, credit union agreements, 401k’s and other instruments as your family changes. Marriage, children, divorce and business partnerships impact many things and it’s amazing how many applications include beneficiary designations you may not remember.   A good estate planner will help you job your mind to review all your bank accounts, financial accounts such as annuities or stock plans, insurance plans, etc. for you to keep up to date.  

Asset ownership should always include a pour-over will tie to a trust created specifically for the purpose of pour-over. The pour-over clause protects property not previously placed in the trust by pouring it into the previously established trust through the vehicle of the will. 

Assets with outdated beneficiary designations mean that assets might go to ex-civil partnerships, ex-spouses, parents or siblings instead of current spouses or children.   The Lifetime movie where a long-term beloved spouse & children get evicted from their home by an ex-wife from decades earlier because the beneficiary paperwork was not completed are based on the true-life estate planning horror stories of real people.  Estates tied up in probate until nothing is left after fees or children being leftover because of failure to update beneficiary data are all-too-common occurrences. 

The Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act also has made changes in income and estate taxes that investors and entrepreneurs should explore to see if their current plans are meeting their needs. Some of these changes are: 

  • Establishes a 20 percent deduction of qualified business income from certain pass-through businesses. 
  • Allows full and immediate expensing of short-lived capital investments for five years. Increases the section 179 expensing cap from $500,000 to $1 million. 
  • Double the estate tax exemption 

Better Planning Now Leads to Better Outcomes in Your Work, Life and Generational Wealth

Estate planning doesn’t have to be an odious task and with the right estate planner it can really set you up for success.  

A quick note for my Category 3 people – I have no data on this but the people who have a plan are the least likely of those to suffer ill consequences based on all my experiences.  They seem to live long, happy and worry-free lives moreso than those who stick their head in the sand. Plus, you never see Lifetime movies made about them now – do you? 😛

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