Everyone wants an estate plan, but not everyone has one.
Sadly, a recent Caring.com survey indicates that 67% of Americans are likely to die without an estate plan. In my opinion, everyone age 18 and up should have a basic estate plan in place.
Here are five key tasks you should complete right away to safeguard your family.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Designate health care and financial powers of attorney.
One of the main reasons everyone should have an estate plan in place is to ensure someone is designated to make health care and financial decisions on your behalf in the event that you are incapacitated.
2. Choose beneficiaries on your IRAs and 401(k)s.
If you do not have beneficiaries on these accounts, then they will go to probate. And probate can cost 4% to 7% of an estate, so if you don’t want your family to pay tens, or even hundreds, of thousands of dollars in legal fees, you need to plan to avoid this. Designating beneficiaries is an easy and quick fix. Just make sure you update them if your beneficiaries pass or plans change.
3. Put in place transfer on death (TOD) designations.
If you have nonqualified assets, like a house or a joint investment account, then you will want to make sure it has a TOD in place. A TOD allows your assets to pass without probate. This is something many people often neglect to do. Understand that having a beneficiary will not avoid probate for these assets. You must take this additional TOD step.
4. Implement tax planning strategies.
An estate plan goes far beyond the documents listed above. Good estate planning, in my mind, involves being tax-smart and proactively positioning your assets to keep Uncle Sam out of what you have accumulated over all these years. I feel so strongly about this topic that I wrote a book about it — I Hate Taxes.
It is important to understand tax-efficient strategies like Roth conversions and setting up trusts to best plan for these tax opportunities. We would advise you to seek guidance from a retirement planning firm specializing in tax planning. Our firm has a list of over 50 tax-saving strategies that we look to implement for each of our clients. Many of those strategies can be found in the book I mentioned!
The other important tax to be aware of when considering transferring wealth is the estate tax. This is not a concern to many right now, considering the current limit before you have to pay estate tax is almost $13 million. However, even if you do not have that much wealth, I would still encourage you to start considering planning for estate taxes. Why? Because the estate tax limit will get cut in half in 2026 due to the expiration of the Tax Cuts and Jobs Act. And the estate tax limit has been well under $1 million as recently as 2001.
And remember, our country is more than $30 trillion in debt. Do you think they will find ways to get hardworking and smart people to pay more taxes? The way estate taxes work is that any money you have over the limit could be taxed at a 40% tax rate, leaving almost as much money to Uncle Sam as to your beneficiary. The good news? Through effective tax planning, you can find ways to avoid having Uncle Sam as a beneficiary when it comes to estate taxes.
5. Do your due diligence.
Lastly, if you are working with a financial planner, we suggest that you make sure your adviser works closely with an attorney to help ensure you get the right documents in place while avoiding things you do not need. We have seen that happen far too many times.
For example, some clients of ours attended a steak dinner held by an estate planning attorney who tried to sell them a $3,500 estate plan. Our clients met with the attorney with whom we work closely, and the clients walked out of those discussions paying only $750. The steak dinner attorney was trying to sell them something they did not need to make more money. So my point is: Make sure you do your due diligence and find a group you can truly trust.
Related Content
- Estate Planning: Who Needs a Trust and Who Doesn’t?
- Do You Have at Least $1 Million in Tax-Deferred Investments?
- Five Big Estate Planning Mistakes and How to Avoid Them
- To Avoid Probate, Use Trusts for Estate Planning
- How Quitclaim Deeds Can Cause Estate Planning Catastrophes
-
A Lesson From the School of Rock About the MarketsIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I retired at 65 with $7.8 million and feel like I over-saved. My 40-something son is on the same path. Should I tell him to reconsider?We ask financial experts for advice.
-
A Lesson From the School of Rock (and a Financial Adviser) as the Markets Go Around and Around
It's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
New Opportunity Zone Rules Triple Tax Benefits for Rural Investments: Here's Your 2027 StrategyNew IRS guidance just reshaped the opportunity zone landscape for 2027. Here's what high-net-worth investors need to know about the enhanced rural benefits.
-
The OBBB Ushers in a New Era of Energy Investing: What You Need to Know About Tax Breaks and MoreThe new tax law has changed the energy investing landscape with expanded incentives and permanent tax benefits for oil and gas production.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
