Private Client Group Newsletter Q1
By April Rosenberry, JD, LLM in Taxation
Director of Estate, Tax, and Financial Planning
Estate Planning Essentials
Setting up the building blocks for a more impactful legacy
Regardless of your age or the extent of your wealth, estate planning should be an essential part of your overall financial planning. Not only does estate planning offer the means to preserve and ultimately distribute your assets according to your wishes, it helps you determine that your personal healthcare wishes and directives are followed and helps minimize exposure to taxes and avoid probate on your estate.
Yet according to a recent survey, more than two-thirds of adult Americans (67%) have yet to implement any sort of estate planning.1
From Pablo Picasso who died intestate (causing his estate settlement to take six years at a cost of $30 million) to the more recent death of Prince who passed away without a will or estate plan (leading to a contentious and costly 5+ year legal battle for his $156 million estate), there’s no shortage of cautionary tales about the importance of having a plan. Yet far too many people either procrastinate entirely or fail to update their estate plans to reflect changing circumstances.
The simple truth, however, is that estate planning doesn’t need to be overly challenging, difficult or time consuming. At SEIA, we’re here to help you navigate the process—showing you how establishing a solid estate planning foundation for yourself and your family can be as easy as 1-2-3:
Define Your Legacy
Before diving into estate planning specifics, it’s important to first take time to reflect on what matters to you most; to help bring greater clarity to your legacy objectives and goals.
- What are your priorities regarding the eventual transfer of your wealth?
- What values do you hope to instill in future generations?
- What charitable causes or civic organizations would you like to support?
By documenting these core values, you’ll be able to strengthen bonds across generations. And through defining the legacy you wish to leave, you’re able to create a roadmap for how you want to be remembered and the impact you want to leave behind.
Identify Your Assets
Next, you will need to gather information on all your financial assets (identifying their type, title and value) so your team can establish a full understanding of your overall planning needs. Along with your financial assets, thoughtful planning involves identifying and leveraging non-financial assets such as personal property (e.g., heirlooms, photos, jewelry, keepsakes) as well as digital assets (e.g., social media, blogs, audio files, cloud storage, electronically stored documents, etc.). And don’t forget to include your furry or feathered friends. Under many state laws, pets are considered personal property, allowing you to provide for their financial and personal care in your estate planning documents.
These simple steps will help ensure that all of your assets are accessed and transferred to intended beneficiaries pursuant to your wishes.
Draft Key Estate Planning Documents
Once equipped with insights about your legacy and a clearer understanding of your assets, it will be time to draft a handful of important estate planning documents. While there’s no ‘one size fits all’ list of documents that are applicable for everyone, the following are often considered foundational elements for a wealthy individual’s estate plan:
Will—your will is a legal document that outlines how you want your assets to be distributed upon your death. With some exceptions, wills are governed by your state’s Probate Court (meaning a judge will oversee your estate assets, beneficiary rights, and distributions). In some states, probate has the potential to be lengthy, expensive and challenging for your surviving family.
Assets may take up to two years to reach your beneficiaries, and costs can average 7% (although your specific costs may significantly differ since total probate costs depend on the value and type of an estate’s assets). Also, keep in mind that most probate processes are a matter of public record; meaning your personal information (and that of your beneficiaries) will be accessible to the public.
Lifetime (Revocable) Trust—a revocable trust is a versatile tool that allows you to hold and plan for assets during your lifetime, and then ultimately transfer those assets to beneficiaries upon your death. Revocable trusts are specifically designed to bypass the probate process and allow your named decision-makers more control over how and when assets are distributed through a private process outside of the courts.
Beneficiary Designations—allows assets such as retirement accounts, life insurance policies, annuities and payable-on-death bank accounts to also circumvent the probate process; passing directly to the named beneficiaries. This means it’s vital to conduct periodic reviews of all your beneficiary designations to ensure they still align with your overall estate planning goals.
Durable Power of Attorney—should you become incapacitated at any point in time, this document appoints someone to make financial decisions on your behalf.
Health Care Directives (Living Will & Healthcare Power of Attorney)—document your specific preferences for medical treatment if you are unable to communicate. It’s a way to ensure your cultural, religious and personal wishes concerning life-saving measures and end-of-life care are honored.
Additionally, for individuals with a net worth of more than $5 million (or $10 million for married couples), there are certain tax and trust strategies (i.e., Advanced Strategies) which can be implemented to deliver an extra measure of long-term tax minimization and asset protection.
Once in place, your estate planning documents should generally be reviewed every few years to ensure they still meet your wishes and remain compliant with any changes to current tax laws. They should also be updated to reflect any life changes (e.g., marriage, divorce, births, deaths) as well as any significant changes to your financial situation.
Conclusion
By taking a little time to better understand the fundamentals of estate planning, you can create a stronger plan that will highlight your legacy and help determine the distribution of your assets in accordance with your wishes. If you have questions or would like more information about estate planning, please talk with your SEIA advisor. We’re here to help you achieve greater financial peace of mind; and this can be a tremendous way to further that goal.
1 Source: Think Advisor “Two-Thirds of Americans Don’t Have an Estate Plan: Survey,” October 2022
SEIA is not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Signature Estate & Investment Advisors, LLC (SEIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC member FINRA/SIPC. Investment advisory services offered through SEIA, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2323.
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