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None of us will be present to ensure that the transfer of our assets goes smoothly after death, so the time to plan and prepare is while you are still alive.
Consult an estate planner to develop a comprehensive strategy, but make sure you understand the following key points about leaving a legacy today.
Estate planning is for everyone, not just the rich
A common misconception is that estate planning is for wealthy beneficiaries with large, valuable and complex assets that are passed on to their heirs. This is a big part of 2024 Caring.com Wills and Estate Planning Study Found that only 32% of Americans have even a basic will – 40% don’t think they have enough assets to make it worth their while.
Explaining the harm of this disconnect, the study authors suggest that everyone over the age of 18 should have a will, because in addition to ensuring the distribution of financial assets according to your instructions, they also:
- Give you control over important health care decisions.
- Determine the fate of your social media accounts and other digital assets.
- Provide binding guidance on how and by whom children should be cared for.
Without a will, courts decide who gets what
according to estate and willDying without a will is called intestate, and people who die without a will have their assets immediately seized by the courts, who then appoint someone to go through every financial statement and apply your state’s intestacy laws – which vary greatly – to determine who gets what property.
This is a long, tedious and frustrating process that does not take into account family dynamics or the wishes of the deceased and often leads to infighting and lawsuits – and it is expensive, costing up to 7% of the deceased’s estate.
Trusts provide greater privacy, security, control, and tax relief than wills
Like estate planning, in general, people associate trusts with the rich and elite. However, like wills, they are simply a set of legal instructions that many people of different income levels can benefit from – and the benefits are numerous.
according to Western and Southern Financial GroupThere are many types of trusts, but overall, they:
- Avoid Probate: Even with a will, most assets will still go through probate court. Trusts generally do not do this.
- Provide Privacy: Wills are in the public record. Trusts remain private after death.
- Provide more flexibility and control: Unlike a will, a trust can be written to accommodate a number of contingencies regarding asset distribution, including the trustor’s survival.
- The tax benefits are: Some types of trusts are designed to minimize estate and inheritance taxes without a will.
Step-up Basis: This Phrase Every Long-Term Property Owner Must Know
according to LoyaltyThe stepped-up basis rule adjusts the value of inherited property and other assets to their fair market value at the time of the owner’s death. Anyone considering selling an appreciated asset in later life should understand the implications before withdrawing the cash.
Consider the following example:
- You bought a house for $100,000 in the 1980s.
- Today the market value of the home is $600,000.
- If you sell the house, you have a capital gain of $500,000.
- If you instead leave it to a child, the stepped-up basis resets the market value to $600,000 at your death.
- If the child sells the asset for $600,000, they will not receive any taxable capital gains.