Estate planning (aka Tax-Free Inheritance) is for everybody, not just the wealthy! Without an estate plan your heirs (family, friends, pets or charities) can spend a lifetime (and all of their savings) in court against the state, the federal government or IRS (even third parties) over your money!
The Big Problem, If You Will!
Like many people you might think you don't need to do any sort of estate planning. You might think that a simple “WILL”, hits the spot. Yet, wills are simply legal documents that communicate your intentions for burial and to whom you wish to pass money and property (the estate) when you pass. A judge has to allow the transfer of that money and property from your accounts to the beneficiaries' (heirs) accounts. This procedure is known as probate, which can keep your estate “locked” in court for years. A will alone is not an estate plan, but more of a guarantee that your family will end up “broke”.😮
On top of that, probate fees can cost thousands and thousands of dollars. There are executor fees, court fees, recording fees and attorney fees, and in many cases, these fees must be paid as the estate is probated, meaning that the heirs will need to come up with the money fairly immediately upon the person's death. A will also does not solve the problem of estate taxes. Yes, as we have stated over and over again, the IRS will come for you even after you ‘ve passed… 😒
What Is Estate Planning?
When people talk about estate planning, they usually mean asset distribution. In other words, they're talking about how your wealth, assets, pensions, and more will be gifted to your heirs after you pass away.
is the act of preparing for the transfer of a person's wealth and assets after his or her death. Do not underestimate the broad scope of the term "estate":
it consists of all the property you own or control.
Examples of the more well-known items include assets such as personal property, real estate, bank accounts, insurance policies, business interests, certain trust accounts and debts, life insurance, pensions, cars, & other belongings just to name a few. Estate plans must be written, signed, and notarized by the person who owns the estate.
Okay, So What Makes Up An Estate Plan?
An estate plan contains a handful of very important documents, each with a different and unique purpose. Below we offer an overview of the most popular estate planning documents:
This is by no means a finite list, there are also documents regarding custody of your children, pets and other formalities, please contact an experienced lawyer for all your specific needs:
A Last Will and Testament lets you choose who inherits your assets, select guardians for your children, and name an executor to make sure your wishes are carried out. It's the most important part of an estate plan.
A Living Will, will let you decide the sort of care you want if you're hospitalized and can't make decisions for yourself. For example, some people have strong religious beliefs about being resuscitated and may choose to note those in their Living Will.
A Healthcare Power of Attorney, concerns the same medical treatment issues, but instead of laying out your choices in a document, you name another person to make those decisions for you. Generally, this is a spouse, family member, or close friend.
A Financial Power of Attorney, also lets you choose a trusted agent to act on your behalf, only instead of making healthcare decisions, this person will be handling your finances. For example, you can give them specific access to accounts to help make sure your bills and mortgage stay current.
A Trust, allows you to set aside money and other assets for people or organizations (usually charities). Establishing a trust is a great way to mitigate some or all of the estate taxes that would otherwise be owed upon your death. No court is involved, so there are no probate fees and no public record of the value of the estate either. A trust allows a person to transfer legal title of his or her property to another person while they're still alive, saving thousands even millions in taxes. While both a Trust and a Living Trust allow you to leave property and assets for your heirs, a Living Trust actually lets you receive money or other assets from the Living Trust. You won't be able to simply dip into the Living Trust and use it as a piggy bank, but you can set it up so that your Living Trust pays you a stipend as a beneficiary.
How Does This Work For My Real Estate!
Estate Planning for real estate investors with less than the Federal Estate tax thresholds (currently approximately $5.5 million) consists of two core components: a Living Trust and a Pour Over Will. There are slightly different strategies for investors above the threshold, who will have additional considerations and special concerns.
The Living Trust will have ultimate ownership and control over all of your assets and companies. The Living Trust allows for the control of the assets to immediately pass to your heir, as opposed to getting caught up in probate court by passing through an ordinary will. With this method, you can breathe easy knowing that mortgage payments are made, rents are collected, insurance premiums are paid, etc. The Living Trust ensures that your property is not lost or diminished in value, which are both highly likely occurrences if the properties are caught in probate court.
The Pour Over Will essentially states that anything that was not put into the Living Trust during your lifetime is “poured” into the Trust and distributed accordingly to the beneficiaries (your heirs). These tools work together to ensure a seamless business transition that carries on your legacy as quickly and simply as the law allows.
With an Estate Planning you generally create tax, asset and legacy protection benefits. In any case you should really consult with specialized cpa's & attorneys to serve your specific needs, we only want to make you aware of the benefits here! 🧐
Dive deeper into the creative Tax Planning World and take a closer look at the benefits of a 121 Exclusion and the bigger wealth creation opportunities of the 1031 exchange in conjunction with your Estate Planning.
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