In part 2 of this three part blog series, we will cover how these documents work to help transfer assets. There are a variety of ways that asset transfer occurs from decedent to beneficiary. Some methods are more efficient and easier for an estate’s executor to manage than others.
- A Last Will and Testament provides guidance for distribution of assets that are not jointly owned, have no listed beneficiaries and are not held in trust. Probate is the method through which the estate’s executor and state courts distribute these assets using a Last Will and Testament as guidance. Depending on the state, Probate can be a lengthy and often expensive process. Last Will and Testaments and assets subject to probate are also made public in court records. For these reasons, it is advised to minimize the number of assets that are subject to probate. Items of personal property, such as heirlooms, do not generally have official registrations and don’t allow for listing beneficiary designations. So, it is advisable to create a memo with a schedule of personal property and the intended recipient (attached to the Last Will and Testament) to provide guidance to the executor and to the courts, as these items must be probated.
- Beneficiary designation: This method of asset transfer applies to life insurance policies, retirement plans and bank accounts where the asset owner has listed beneficiaries to inherit the asset at his or her passing. Primary and secondary beneficiaries may be selected, and beneficiaries may be individuals or charities.
- Title: Some assets pass by title or registration to co-owners. These assets include accounts that are titled as joint with rights of survivorship, homes or real property with multiple owners listed on the deed, and vehicles and boats with multiple owners listed on the title.
- Trust terms: Assets that are held in trust are also not impacted by the grantor’s Last Will and Testament and do not go through probate on the grantor’s passing. The trust document will define the trust’s beneficiaries and how assets will be distributed to them.
FINANCIAL & TAX IMPLICATIONS:
Along with method of transfer, it is important to consider the financial and tax implications of an estate plan, so you understand the financial legacy you’re leaving behind. Utilizing the high estate tax limit and lifetime giving strategies are key factors. The current estate tax exemption limit is $11.4 million per person ($22.8 million per couple). This means that many families will not incur an estate tax at the passing of one or both spouses. The high exemption limit provides planning opportunities that individuals can use during their lifetimes to save on taxes long term. A financial planner can assist in designing an estate plan to implement tax efficiencies and provide for the family’s needs.
An estate plan can also help to administer a charitable giving strategy that is aligned with the client’s values and helps carry his or her legacy forward. A financial planner can assess the tax benefits of making donations and create a plan that helps maximize tax benefits during a client’s lifetime and at passing.
Next week, we will look at a step-by-step process for creating, implementing, and maintaining an estate plan.